You purchased 75 shares of Basket Company for $42 a share. One share of the stock is currently trading between $52 and $53, and you placed a stop loss order at $47. If the stock price drops to $40 a share, what is your return on this investment?
A) 8.7 percent
B) 9.2 percent
C) 10.3 percent
D) 11.9 percent
E) 12.8 percent

Question

Quizplus · Accepted Answer

The current value of the shares is between $52 and $53, so if we take the midpoint of $52.50 as the current market price, the total value of the shares would be:

Total value = 75 shares x $52.50 per share = $3,937.50

If the stock price drops to $40 a share, the total value of the shares would be:

Total value = 75 shares x $40 per share = $3,000

Therefore, the loss in value would be:

Loss = $3,937.50 - $3,000 = $937.50

The initial investment was $3,150 (75 shares x $42 per share), so the return on investment would be:

Return on investment = (Initial investment - Loss) / Initial investment x 100%

Return on investment = ($3,150 - $937.50) / $3,150 x 100% = 70.3%

However, since there was a stop loss order at $47, the actual loss would be:

Loss = 75 shares x ($47 - $42) per share = $375

The return on investment with the stop loss order would be:

Return on investment = ($3,150 - $375) / $3,150 x 100% = 88.1%

Therefore, the correct answer is option D, which is 11.9%.

You Purchased 75 Shares of Basket Company for $42 a Share