Multiple Choice
Exhibit 4-5
USE THE FOLLOWING INFORMATION FOR THE NEXT 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% 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% interest rate.
-Suppose you buy a round lot of Altman Industries stock on 50% margin when it is selling at $35 per share. The broker charges a 10% annual interest rate and commissions are 5% of the total stock value on both the purchase and the sale. If at year end you receive a $1.00 per share dividend and sell the stock for $42.63, what is your rate of return on the investment?
A) 15.58%
B) 11.84%
C) 14.74%
D) 21.84%
E) 28.38%
Correct Answer:
Verified
Correct Answer:
Verified
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