
a.
To calculate: Percentage increase in the net worth of the brokerage account.
Introduction: A brokerage account refers to an investment account that allows the account holder to deposit money and execute the trade in the place of the customer.
a.

Answer to Problem 11PS
Percentage change in net worth if price changes to $22 is 13.33%
Percentage change in net worth if price changes to $20 is 0%
Percentage change in net worth if price changes to $18 is -13.33%
Explanation of Solution
Given Information:
Selling price per share: $20
Number of shares: 1,000
Initial investment: $15,000
If share price of X changes to $22
If share price of X changes to $20
If share price of X changes to $18
Working Notes:
Calculation of current net worth:
b.
To calculate: The price at which the margin call will be generated.
Introduction: A margin call occurs when an investor’s account has fallen below the maintenance margin requirement, and then the margin call occurs.
b.

Answer to Problem 11PS
Margin call will be generated when the price is $13.33 or lower.
Explanation of Solution
Given Information:
Maintenance margin: 25%
Computing the price at which margin call will be generated:
Price is denoted by P
The total value of shares is 1000P
The chances of getting a margin call increases when the equity of business gets decreased.
c.
To calculate: The price at which margin call will be generated.
Introduction: When an investor’s account has reduced to a certain amount which is equal to or less than the account’s maintenance margin, then the margin call occurs.
c.

Answer to Problem 11PS
Margin call will be generated when price is $13.33 or lower.
Explanation of Solution
Given,
Initial investment: $10,000
The total value of shares is 1,000P, (Here P denotes the price)
Now, the money of your own is reduced to $10,000 which means the borrowed amount is increased to $10,000.
d.
To calculate: The
Introduction: The
d.

Answer to Problem 11PS
Return over the price if a price change to $22 is 10.67%
Return over the price if price changes to $20 is -2.67%
Return over the price if price changes to $18 is -16%
Explanation of Solution
Given Information:
Number of shares: 1,000
Initial investment: $15,000
Return over the price if Price of X changes to $22
Return over the price would be 10.67%
Return over the price if Price of X changes to $20
Return over the price would be -2.67%
Return over the price if Price of X changes to $18
Return over the price would be -16%
e.
To calculate:The price at which margin call occurs after year passed.
Introduction: When an investor’s account arrives at a point where the initial margin deposit is equal to or less than the loss, which reduces the initial margin then the margin call occurs.
e.

Answer to Problem 11PS
Lowest Price fall before margin call is $7.2
Explanation of Solution
Calculating margin ratio:
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Chapter 3 Solutions
Investments, 11th Edition (exclude Access Card)
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