USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 62

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2 percent for purchases and 2 percent for sales. The interest rate on margin debt is 6.25 percent per year. The maintenance margin is 30 percent.
-Refer to Exhibit 3.7. At the end of one year, shares of RossCorp stock are selling for $55 per share and the company paid dividends of $0.85 per share. Assuming that you paid the full cost of the purchase, what is your rate of return if you sell RossCorp stock?

• A) 18.08 percent
• B) 23.51 percent
• C) 22.32 percent
• D) 14.96 percent
• E) 19.28 percent

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Definitions:

Semiannual Coupon

A fixed income security feature that represents the payment of interest to bondholders twice a year.

Par Value

The nominal or face value assigned to a security by the issuer, which may differ from its market value.

Semiannual Coupon

A bond or other fixed-income security that pays interest to the holder every six months.

Interest Rate

The price, in terms of a percentage of the principal, that a borrower needs to pay a lender to utilize their financial resources.