USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 41

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of $35. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $15. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at $30 and are charged a commission of $15 and a 6 percent interest rate.
-Refer to Exhibit 3.4. What is your dollar return on the investment?

• A) $130.50
• B) $300.50
• C) $100.00
• D) $1,773.75
• E) $3,500.00

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Definitions:

Dollar Amount

Refers to the value or cost of something expressed in units of currency.

Break-even Point

The level of production or sales at which total revenues equal total expenses, resulting in no net loss or gain.

Variable Costs

Costs that fluctuate in direct relation to the level of production or volume of operations in a business.

Fixed Costs

Costs that remain constant and do not change based on the volume of goods or services a business produces.