You Want to Purchase GM Stock at $40 from Your

question 60

Multiple Choice

You want to purchase GM stock at $40 from your broker using as little of your own money as possible. If initial margin is 50% and you have $4,000 to invest, how many shares can you buy?

• A) 100 shares
• B) 200 shares
• C) 50 shares
• D) 500 shares
• E) 25 shares

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Definitions:

Margin of Safety

The difference between actual or expected sales and the breakeven sales, indicating the amount by which sales can drop before the business incurs a loss.

Percentage of Sales

A financial metric or method that relates various income statement accounts as a percentage of sales, often used for analysis or forecasting.

Operating Leverage

A measure of how much a company's income can be affected by changes in sales volume, highlighting the ratio of fixed costs to variable costs.

Operating Leverage

An indicator of the degree to which net operating income responds to a specific percentage variation in sales revenue.