Staci Just Used $5,000 of Cash Plus a $2,500 Margin

question 7

Multiple Choice

Staci just used $5,000 of cash plus a $2,500 margin loan to purchase $7,500 worth of stock.This is the only transaction in her brokerage account.According to her account balance sheet,she now has account equity of:

• A) $2,500.
• B) $5,000.
• C) $7,500.
• D) $12,500.
• E) $15,000.

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Definitions:

Required Returns

The minimum expected return on an investment, determined by the investor's risk tolerance and the investment's risk level.

Diversifiable Risks

Risks that can be reduced or eliminated through diversification in an investment portfolio.

Beta

A measure of a security's volatility in relation to the overall market; used in the capital asset pricing model to determine the expected return of an asset.

Risk-Free Rate

The rate of return of an investment with no risk of financial loss, typically represented by government bonds.