Exhibit 4.4 Use the Information Below for the Following Problem(S)

question 90

Multiple Choice

Exhibit 4.4
Use the Information Below for the Following Problem(S)
You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of $35. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $15. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at $30 and are charged a commission of $15 and a 6 percent interest rate.
-Refer to Exhibit 4.4.What is your rate of return on the investment?

• A) 10.48%
• B) 12.87%
• C) 13.98%
• D) 15.49%
• E) 18.87%

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Definitions:

Annual Interest

The amount of interest paid or earned over a one-year period, typically expressed as a percentage of the principal.

Graduate

The act of completing a course of study at a college or university, culminating in the receipt of a degree.

Discount Rate

This is the interest rate utilized in discounted cash flow analysis to assess the current value of future anticipated cash flows.

Shareholders

Individuals or entities that own one or more shares of stock in a company.