Assume That MM's Perfect Capital Markets Conditions Are Met and That

question 45

Multiple Choice

Assume that MM's perfect capital markets conditions are met and that you can borrow and lend at the same 5% rate as With.You have $5000 of your own money to invest and you plan on buying Without stock.Using homemade leverage,how much do you need to borrow in your margin account so that the payoff of your margined purchase of Without stock will be the same as a $5000 investment in With stock?

• A)$10,000
• B)$5250
• C)$5000
• D)$2500
• E)$0

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Definitions:

Conifers

A group of gymnosperm plants characterized by seed-bearing cones and needle-like or scale-like leaves, including pines and spruces.

Horsetail

A seedless vascular plant having only one genus (Equisetum) in existence today; characterized by rhizomes, scalelike leaves, strobili, and tough, rigid stems.

Sporophyte

The diploid, spore-producing phase of a plant that alternates with the haploid gametophyte in the life cycle.

Angiosperms

Flowering plants that produce seeds enclosed within a fruit, representing the most diverse group of plants on Earth.