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Federal Reserve Reg T mandates that you can borrow up to 50% of the price of securities you buy from your broker. Suppose you buy 100 shares of IBM stock at $135 per share, borrowing the full 50% from your broker at 2% interest per year. After 1-year, suppose IBM stock increases in value by 10% in value and pays no dividend.

Which of the following is closest to your return assuming you receive no margin calls during the year?

(a) 5%

(b) 10%

(c) 15%

(d) 20%

(e) 25%

Reference no: EM132473754

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