At the Beginning of 2010,Sally Purchased Besham Stock on Margin

question 21

Multiple Choice

At the beginning of 2010,Sally purchased Besham stock on margin.The initial margin requirement is 60 percent and the broker loan rate is 10 percent.Sally invested $15,000 of her own funds and margined the maximum amount allowed by the broker to purchase Besham stock.At the time,the purchase price of the stock was $50 a share.No dividends were paid during the year,and the stock was sold for $48 a share at the end of the 2010.What is the one-year holding period return for this investment?

• A) 60.0%
• B) 10.0%
• C) 4.0%
• D) 6.7%
• E) 0.0%

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Definitions:

Stop-Buy Order

An order placed with a broker to buy a security once it reaches a certain price, used to limit loss or protect profit.

Short-Sell

A trading strategy where an investor borrows a security and sells it on the open market, planning to buy it back later for less money.

Loss

The financial result of an activity when costs and expenses exceed the revenues or returns generated.

Bid and Ask Prices

The prices at which buyers are willing to buy (bid) and sellers are willing to sell (ask) a security or asset in the market.