Josh Warner has a margin account and deposits $25,000 (the cash amount). If the initial margin deposit is 40 percent, and JC Industries is currently selling at $25 per share:

How many shares of JC can Josh buy? What is Josh's profit ($) if JC's price rises to $42?

		2,500 & 55,000
		3,200 & 60,000
		2,500 & 42,500
		3,200 & 54,400
		2,500 & 28,570

A friend has information that the stock of Zip Incorporated is going to rise from $62.00 to $65.00 per share over the next year. You know that the annual market return has been 10% and the 90-day T-bill rate (risk free rate of return) has been yielding 6% per year over the past 10 years. If beta for Zip is 0.9, will you purchase the stock?

[Formula: Required Rate of Return using CAPM = Risk free rate + Market risk premium * Beta]

		Yes, because it is overvalued
		Yes, because it is undervalued
		No, because it is undervalued
		No, because it is overvalued
		Yes, because the expected return equals the estimated return