Exhibit 4.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 7

Multiple Choice

Exhibit 4.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%.
-Refer to Exhibit 4.7.At the end of one year shares of RossCorp stock are selling for $35 per share and the company paid dividends of $0.85 per share.Assuming that you borrowed 25% of cost of the purchase,what is your rate of return?

• A) 33.05%
• B) -33.05%
• C) -23.51%
• D) -25.35%
• E) -40.64%

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Definitions:

Compound Interest

A method where interest is calculated not just on the initial amount invested or borrowed, but also on the interest that has been accumulated over previous periods, for either savings or loans.

Discount Rate

The rate of interest that is applied to find out the present value of cash flows predicted in the future, within the framework of discounted cash flow analysis.

Present Value

The monetary valuation presently of a future sum of money or ongoing cash flows, considering a predetermined rate of return.

Interest Rate

The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal, typically on an annual basis.