(A)
Introduction:
Margin in stock purchasing means the portion of the purchase price is contributed by investor, the remaining is borrowed from the broker. Thus it describes stock purchased with money borrowed in part from broker.
Requirement 1:
To calculate percentage change in net worth if price of each share changes to $44
Explanation of Solution
Adequate Information:
Market price of each share- $40
Number of shares purchased- 500
Money in hand - $15000
Loan rate - 8%
Calculate:
Calculation of percentage increase in net worth if selling price changes to $44
Thus the percentage gain is 13.33% if the price of each share changes to $44 and the ratio of percentage change in return with percentage change in price is 0.75
(B)
Introduction:
Margin in stock purchasing describes stock purchased with money borrowed in part from broker. It is calculated as:
Where equity in account = Value in stock − Loan from broker.
Explanation of Solution
Adequate information:
Margin- 25%
Number of shares purchased- 500
Loan amount = $5000
To calculate Xtel's share price if the Margin is 25 %
Calculation of price of each share if Margin is 25%
Thus the price of share will be $13.33 when the margin is 25%.
(C)
Introduction:
Margin in stock purchasing describes stock purchased with money borrowed in part from broker. It is calculated as:
Where equity in account = Value in stock − Loan from broker.
Also, Loan from broker = Market value of shares − Money in hand.
Explanation of Solution
Adequate information:
Margin- 25%
Number of shares purchased- 500
Money in hand -$10000
To calculate Xtel's share price if the Margin is 25 %
Calculation of price of each share if margin is 25% and money in hand is $10000
Thus the price of share will be $26.67 when the margin is 25% and money in hand is $10000.
(D)
Introduction:
Margin in stock purchasing describes stock purchased with money borrowed in part from broker. The loan from broker is:
Loan from broker = Market value of shares − Money in hand.
Requirement 1:
To calculate
Explanation of Solution
Adequate Information:
Money in hand -$15000
Number of shares- 500
Loan rate- 8%
Market price of each share- $40
Thus the percentage return if price of each share changes to $ 44 is 10.67% and the ratio of percentage change in price and return is 0.93.
(E)
Introduction:
Margin in stock purchasing describes stock purchased with money borrowed in part from broker. It is calculated as:
Where equity in account = Value in stock − Loan from broker.
Explanation of Solution
Adequate Information:
Money in hand -$15000
Number of shares- 500
Loan rate- 8%
Market price of each share- $40
To calculate Xtel's share price after one year if the Margin is 25 %
Calculation of price of each share after one year if Margin is 25%
Thus the price of share will be $14.40 when the margin is 25% after one year.
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Chapter 3 Solutions
Connect 1-Semester Access Card for Essentials of Investments
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