At the Beginning of 2010,Steve Purchased ACME Stock on Margin

question 77

Multiple Choice

At the beginning of 2010,Steve purchased ACME stock on margin.The initial margin requirement is 50 percent and the broker loan rate is 8 percent.Steve invested $15,000 of his own funds and margined the maximum amount allowed by the broker to purchase ACME stock.At the time,the purchase price of the stock was $25 a share.No dividends were paid during the year,and the stock was sold for $32 a share at the end of the 2010.What is the one-year holding period return for this investment?

• A) 28.0%
• B) 56.0%
• C) 24.0%
• D) 40.0%
• E) 48.0%

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Definitions:

Shut-down Price

The price level at which a business's revenue just covers its variable costs, below which it will cease operations.

Average Variable Cost

The average cost of variable inputs (like labor and materials) per unit of output produced.

Minimum

The lowest point on a nonlinear curve, where the slope changes from negative to positive.

Economic Profit

The difference between the total revenue received by a business and the total implicit and explicit costs of a business.