Question: Using a 50% margin with initial equity of 1,000 allows trader to purchase 500 shares at $40 per share. The interest rate on debt is

Using a 50% margin with initial equity of 1,000 allows trader to purchase 500 shares at $40 per share. The interest rate on debt is 4%. Let's say the the share price increases to $45 per share after one year, what is the ROE (Return on Equity)?

a. 25%

b. 21%

c. 12.5%

d. 42%

e. 4%

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

QUESTION 4 Using a 50% margin with initial equity of 10,000 allows a trader to purchase 500 shares at $40/share. The interest rate on debt is 4%. If the share price increases to $45/share after one...

Can you please explain me questions 6 and 7 under section 17.6? To be honest I did not understand why the true value of the firm before the repurchase is $3000. I would assume that it is $2500...

6-7; 6-9; 6-12 . I need help with these finance questions. PROBLEM 6-1 Cash provided by operations (CPBO) differs from free cash flow for the following reasons: 1. Solution Legend = Value given in...

I am using a capsim program simulation and and have 3 rounds left. Should I invest 40 Million to increase automation to 10 on my 4 largest products. I will only have 2 units to benefit from it ,,It...

Hello there, I need help with my project and homework assignments. Please see attached templates and work problems for more details. Problem 9-4: Traditional WACC Valuation Given Solution Legend Debt...

Can you assist me with this finance questions? 6-8 6-11 6-14. The other one is 8-4. Thank you PROBLEM 6-1 Cash provided by operations (CPBO) differs from free cash flow for the following reasons: 1....

I need assistance with this finance question 8-1. Thank you PROBLEM 8-1 Given Sale price Square footage Selling price/sq ft Time on the market $ $ Comp #1 240,000.00 $ 2,240 107.14 $ 61 days Solution...

CALCULATIONS (18 marks) Lalia Incorporated reported after tax profits of $6,500,000 in 2017. Selected information on Lalias capital structure is as follows at December 31, 2017, the end of its fiscal...

I have a company valuation test coming up and need to practice this is what my professor asked us to study. please help CANDY HOUSE Candy House got 650 million in revenue in 2018 though it arrived at...

1 Suppose that Intel is currently selling at $40 per share. You buy 250 shares by using $7,500 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the...

6/8 Simplify by hand.

Understand cross-cultural variations in nonverbal communications?

ow many randomly selected securities will remove diversifiable risk from a portfolio? a . 5 b . 4 0 c . 1 0 0 d . Portfolios cannot eliminate diversifiable risk

9. (15 points) A company is considering a new project that requires an investment of \$5 million. The project is expected to generate cash flows of $2 million in year 1,$3 million in year 2, and $4...

Compare levels of resolution in conflict outcomes?

What kinds of behaviors provoke you the most? Are there times when you provoke conflict with others, perhaps even on purpose?

Strategies for Managing Conflict Conflict Outcomes?