Seven Months Ago,Freda Purchased 400 Shares of Stock on Margin

question 28

Multiple Choice

Seven months ago,Freda purchased 400 shares of stock on margin at a price per share of $36.The initial margin requirement on her account is 70 percent and the maintenance margin is 40 percent.The call money rate is 4.4 percent and she pays 2 percent above that rate.Today,she sold these shares for $37.50 each.What is her annualized rate of return?

• A)7.50 percent
• B)7.61 percent
• C)14.37 percent
• D)16.90 percent
• E)17.42 percent

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Definitions:

Deadweight Losses

Economic inefficiencies that occur when the equilibrium in a market is not achieved or is distorted, typically resulting in lost welfare or inefficiency.

Ability-to-Pay Principle

A taxation principle that suggests taxes should be levied according to an individual's or entity's ability to pay, implying those with higher income should pay more taxes.

Taxes

Mandatory fiscal contributions or other forms of levies required from taxpayers by governmental bodies to support government expenditures and diverse public costs.

Regressive Tax

A tax system where the tax rate decreases as the taxable amount increases, placing a higher relative burden on lower-income earners.