Stacy Purchased 500 Shares of Stock for $48 a Share

question 49

Multiple Choice

Stacy purchased 500 shares of stock for $48 a share. She sold those shares six months later for $44 a share. The initial margin requirement is 80 percent and the maintenance margin is 40 percent. Ignore margin interest and trading costs. If she purchased the shares for cash her holding period return would be _____ percent as compared to _____ percent if she had used margin.

• A) -8.12; -10.34
• B) -8.33; -10.42
• C) -9.63; -11.30
• D) -9.63; -12.54
• E) -10.27; -12.82

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Definitions:

Maximize

To increase to the greatest possible amount or degree, often used in the context of optimizing performance, efficiency, or profits.

Iso-Profit Line

A graphical representation showing combinations of inputs that result in the same level of profit, used in economic and operational modeling.

Maximization Problem

A type of optimization problem that seeks the highest possible value of an objective function under given constraints.

Feasible Region

The set of all possible points that satisfy a system of constraints, typically within the context of optimization problems.