Mark Would Like to Purchase a Stock Priced at $70

question 33

Multiple Choice

Mark would like to purchase a stock priced at $70. The stock is not expected to pay any dividends in the coming year. Mark can either put up the entire amount and purchase the stock, or borrowhalf of the investment amount from his brokerage firm at an annual interest rate of 12 percent and put up the remainder. Mark thinks he can sell the stock for $100 after one year. If Mark borrows from his brokerage firm, his estimated return on the stock would be ____ percent.

• A) 42.86
• B) 85.71
• C) 73.71
• D) 30

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Definitions:

Confirmatory Value

The usefulness of financial information in confirming or correcting prior expectations.

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and government bodies.

Revenue Agency

This is a government body responsible for the administration of tax laws and the collection of taxes and other revenue.

Current Assets

Items of value that are forecasted to be liquidated, traded, or depleted within the span of one year or throughout the duration of the operational cycle, whichever timeframe is greater.