Allan Purchased 800 Shares of Stock on Margin for $31

question 19

Multiple Choice

Allan purchased 800 shares of stock on margin for $31 a share and sold the shares five months later for $33.50 a share.The initial margin requirement was 65 percent and the maintenance margin was 30 percent.The interest rate on the margin loan was 7.5 percent.He received no dividend income.What was his holding period return?

• A)7.05 percent
• B)8.45 percent
• C)9.88 percent
• D)10.76 percent
• E)11.82 percent

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Definitions:

Variable Expenses Per Unit

Costs that change directly in proportion to changes in production or sales volume, calculated on a per unit basis.

Fixed Expenses

Expenses that remain constant regardless of production volume or sales efforts, like lease payments or wages.

Variable Expenses

Costs that fluctuate with production volume or business activity levels, such as materials and labor.

Fixed Expenses

Costs that do not fluctuate with the level of production or sales, such as rent or salaries.