Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%. Required: a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? b. If the maintenance margin is 25%, how low can Xtel's price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends. e. Continue to assume that a year has passed. How low can Xtel's price fall before you get a margin call? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E
Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%. Required: a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? b. If the maintenance margin is 25%, how low can Xtel's price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends. e. Continue to assume that a year has passed. How low can Xtel's price fall before you get a margin call? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E
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
Problem 1PS
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Transcribed Image Text:Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the
remainder of the purchase price from your broker. The rate on the margin loan is 6%.
Required:
a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i)
$48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of
Xtel?
b. If the maintenance margin is 25%, how low can Xtel's price fall before you get a margin call?
c. How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money?
d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling
after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage
change in the price of Xtel? Assume that Xtel pays no dividends.
e. Continue to assume that a year has passed. How low can Xtel's price fall before you get a margin call?
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C Required D
Required E
How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money?
Note: Round your answer to 2 decimal places.
Margin call will be made at price
or lower
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