Mark Would Like to Purchase a Stock Priced at $70

question 15

Multiple Choice

Mark would like to purchase a stock priced at $70. The stock is not expected to pay any dividends in the coming year. Mark can either put up the entire amount and purchase the stock, or borrow half of the investment amount from his brokerage firm at an annual interest rate of 12 percent and put up the remainder. Mark thinks he can sell the stock for $100 after one year. If Mark borrows from his brokerage firm, his estimated return on the stock would be ____ percent.

• A)42.86
• B)85.71
• C)73.71
• D)30.00

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Definitions:

Uniformly Distributed

A distribution where all outcomes are equally likely to occur, each observation within a certain range has the same probability.

Null Hypothesis

The assumption in statistical testing that there is no significant difference or effect and that any observed difference is due to chance.

Significant Change

A noticeable or meaningful variation that occurs in data, indicating a departure from expected patterns or previous results.

Level of Significance

A criterion for determining the threshold of rejection for the null hypothesis, denoting the probability of committing a Type I error.