Question
An investor purchases 1,400 shares of Beta Inc. at $22 per share [inclusive of commissions] and sells them after 1 year, during which time the
An investor purchases 1,400 shares of Beta Inc. at $22 per share [inclusive of commissions] and sells them after 1 year, during which time the stock also pays a dividend. The following information is also available:
Sale price = $24 Leverage ratio = 1.5 Call money rate = 5% Dividend = $0.20 per share Commission = $0.03 per share Maintenance margin = 20%
Leverage Ratio is an alternative way to express the Margin Requirement. The Leverage Ratio = [1 Margin Requirement] / Margin Requirement. Assume that the interest on the loan and the dividend are both paid at the end of the year. Adams return on this investment is closest to:
a. 17.16%
d. 22.39%
b. 18.52%
e. 24.52%
c. 19.35%
f. 28.52%
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