Exhibit 4.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 54

Multiple Choice

Exhibit 4.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year.
-Refer to Exhibit 4.6.Suppose at the end of one year XCorp is selling at $90 per share and you cover your short position at this price.What is your rate of return on the investment? (Assume a 1.25% commission on the purchase.)

• A) -40.64%
• B) -25.53%
• C) 5.21%
• D) 72.7%
• E) -71.2%

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Definitions:

Going Public

The process by which a privately held company offers its shares to the public for the first time, through an initial public offering (IPO).

Market Value

The present rate at which a service or asset is available for sale or purchase in the open market.

Liquid Market

A market with a high level of trading activity, where assets can be bought or sold quickly without causing a significant change in their price.

Investment Banks

Financial institutions that assist individuals, corporations, and governments in raising capital by underwriting and acting as the agent in the issuance of securities.