d. What is the rate of return on your margined position (assuming again that you invest $10,000 of your own money) if Xtel is selling after 1 year at: (i) $84.24; (ii) $78; (iii) $71.76? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) i. Rate of return ii. Rate of return Rate of return E iii. % % %

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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I need only part D

Suppose that Xtel currently is selling at $78 per share. You buy 250 shares using $10,000 of your own money, borrowing the
remainder of the purchase price from your broker. The rate on the margin loan is 5%.
a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $84.24;
(ii) $78; (iii) $71.76? What is the relationship between your percentage return and the percentage change in the price of Xtel? (Leave no
cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers
to 2 decimal places.)
i.
Percentage gain
ii.
Percentage gain
iii. Percentage gain
b. If the maintenance margin is 25%, how low can Xtel's price fall before you get a margin call? (Round your answer to 2 decimal
places.)
Margin call will be made at price
Margin call will be made at price
15.60 %
0%
(15.60) %
c. How would your answer to (b) change if you had financed the initial purchase with only $9,750 of your own money? (Round your
answer to 2 decimal places.)
i.
ii.
iii.
$
Rate of return
Rate of return
Rate of return
$
50.67 or lower
d. What is the rate of return on your margined position (assuming again that you invest $10,000 of your own money) if Xtel is selling
after 1 year at: (i) $84.24; (ii) $78; (iii) $71.76? What is the relationship between your percentage return and the percentage change in
the price of Xtel? Assume that Xtel pays no dividends. (Negative values should be indicated by a minus sign. Round your answers to
2 decimal places.)
%
%
%
52.00 or lower
Transcribed Image Text:Suppose that Xtel currently is selling at $78 per share. You buy 250 shares using $10,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $84.24; (ii) $78; (iii) $71.76? What is the relationship between your percentage return and the percentage change in the price of Xtel? (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) i. Percentage gain ii. Percentage gain iii. Percentage gain b. If the maintenance margin is 25%, how low can Xtel's price fall before you get a margin call? (Round your answer to 2 decimal places.) Margin call will be made at price Margin call will be made at price 15.60 % 0% (15.60) % c. How would your answer to (b) change if you had financed the initial purchase with only $9,750 of your own money? (Round your answer to 2 decimal places.) i. ii. iii. $ Rate of return Rate of return Rate of return $ 50.67 or lower d. What is the rate of return on your margined position (assuming again that you invest $10,000 of your own money) if Xtel is selling after 1 year at: (i) $84.24; (ii) $78; (iii) $71.76? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) % % % 52.00 or lower
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