The 3rd one is not affected by a persons credit score
Answer: D. The account is prohibited from buying the new issue
Explanation:
The options to the question are:
A. The account can buy the issue without restriction
B. The account can buy the issue if the branch manager approves
C. The account can buy the issue if the registered representative agrees not to share in the profit on the position
D. The account is prohibited from buying the new issue.
From the question, we are informed that a registered representative is a 15% participant in an investment club formed by members of the local Elks Club and that the Elks Club investment club has opened a securities account at ABC Brokerage.
We are further told that the account wishes to buy an IPO being offered by an underwriter, out of the options that were given, the correct option is that account is prohibited from buying the new issue.
Explanation:
The computation is shown below:
For return on investment
Return on investment = Income from operations ÷ invested assets
= $13,200,000 ÷ $55,000,000
= 0.24 or 24%
For Investment turnover
Investment turnover = Sales ÷ Invested assets
= $82,500,000 ÷ $55,000,000
= 1.5
For Profit margin
Profit Margin = Income from operations ÷ Sales
= $13,200,000 ÷ $82,500,000
= 0.16 or 16%
The return on investment
= Profit margin × investment turnover
= 16% × 1.5
= 24%