USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 25

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You decide to sell 100 shares of Topgun Enterprises Inc. short when it is selling at its yearly high of $42.25. Your broker tells you that your margin requirement is 60 percent and that the commission on the sale is $20. While you are short, Topgun pays a $0.85 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at $44 and are charged a commission of $20 and a 5 percent interest rate.
-Refer to Exhibit 3.5. What is your rate of return on the investment?

• A) 10.48 percent
• B) 12.87 percent
• C) -13.98 percent
• D) -24.49 percent
• E) -15.05 percent