Suppose that XTel currently is selling at $40 per share. You buy 500 shares using $15,000 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) $44; (ii) $40; (iii) $36? (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 25%, 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 change if you had financed the initial purchase with only $10,000 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 $15,000 of your own money) if XTel is selling after one year at (i) $44; (ii) $40; (iii) $36? (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 25% (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 $40 per share. You buy 500 shares using $15,000 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) $44; (ii) $40; (iii) $36? (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 25%, 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 change if you had financed the initial purchase with only $10,000 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 $15,000 of your own money) if XTel is selling after one year at (i) $44; (ii) $40; (iii) $36? (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 25% (Round your answer to 2 decimal places.)

 
 
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