Suppose that XTel currently is selling at $60 per share. You buy 1,000 shares using $48,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.   Required: a. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (i) $66; (ii) $60; (ii) $54? (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.)     b. If the maintenance margin is 20%, how low can XTel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)       c. How would your answer to requirement b would change if you had financed the initial purchase with only $30,000 of your own money? (Round your answer to 2 decimal places.)         d. What is the rate of return on your margined position (assuming again that you invest $48,000 of your own money) if XTel is selling after one year at (i) $66; (ii) $60; (iii) $54? (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)       e. Continue to assume that a year has passed. How low can XTel’s price fall before you get a margin call? Note: Assume maintenance margin of 20% (Round your answer to 2 decimal places.)

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
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Suppose that XTel currently is selling at $60 per share. You buy 1,000 shares using $48,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.

 

Required:
a. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (i) $66; (ii) $60; (ii) $54? (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.)

 

 


b. If the maintenance margin is 20%, how low can XTel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)

 

 

 


c. How would your answer to requirement b would change if you had financed the initial purchase with only $30,000 of your own money? (Round your answer to 2 decimal places.)

 

 

 

 

d. What is the rate of return on your margined position (assuming again that you invest $48,000 of your own money) if XTel is selling after one year at (i) $66; (ii) $60; (iii) $54? (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

 

 

 

e. Continue to assume that a year has passed. How low can XTel’s price fall before you get a margin call? Note: Assume maintenance margin of 20% (Round your answer to 2 decimal places.) 

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