You Own 500 Shares of a Stock That You Purchased

question 10

Multiple Choice

You own 500 shares of a stock that you purchased on margin at a price per share of $20.12.The stock is currently valued at $24 a share.Your broker advised you today that your minimum equity position for this purchase is $4,800 as of today.What is the maintenance margin percentage?

• A) 25 percent
• B) 30 percent
• C) 35 percent
• D) 40 percent
• E) 50 percent

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Definitions:

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue.

Financial Leverage

The use of borrowed funds with the goal to increase the potential return on investment.

Leveraged Firm

A company that uses debt along with equity to finance its assets, often resulting in higher potential returns but also higher risk.

ROE

Return on Equity, a financial ratio indicating the profitability of a corporation in relation to stockholders’ equity, showing how well the company uses investments to generate earnings growth.