Exhibit 14.2 Use the Information Below for the Following Problem(S)

question 45

Multiple Choice

Exhibit 14.2
Use the Information Below for the Following Problem(S)
Modular Industries currently has a 16% annual growth rate while the market average is 6 percent. The market multiple is 10.
-Refer to Exhibit 14.2.Determine the justified P/E ratio for Modular Industries assuming Modular can maintain its superior growth rate for the next 5 years.

• A) 6.4
• B) 13.1
• C) 16.5
• D) 23.8
• E) 15.7

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Definitions:

Maintenance Margin

The minimum amount of equity that must be maintained in a margin account to continue holding a position, set by a brokerage to prevent excessive borrowing based on volatile market values.

Margin Call

A margin call occurs when the value of an investor's margin account falls below the broker's required minimum level, prompting the investor to either deposit more funds or sell assets to cover the shortfall.

Margin Deposit

A deposit required by a broker from a client when they borrow from the broker to buy securities, serving as collateral for the loan.

Long Positions

Investing strategy where an investor buys a security with the expectation that it will increase in value.