Assume That MM's Perfect Capital Markets Conditions Are Met and That

question 45

Multiple Choice

Assume that MM's perfect capital markets conditions are met and that you can borrow and lend at the same 5% rate as With.You have $5000 of your own money to invest and you plan on buying Without stock.Using homemade leverage,how much do you need to borrow in your margin account so that the payoff of your margined purchase of Without stock will be the same as a $5000 investment in With stock?

• A)$10,000
• B)$5250
• C)$5000
• D)$2500
• E)$0

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