5.

Suppose that Intel 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%.

a.

What is the percentage increase in the net worth of your brokerage account if the price of Intel 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 Intel? (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. Omit the "%" sign in your response.)

(i) Percentage gain	%
(ii) Percentage gain	%
(iii) Percentage gain	%

b.	If the maintenance margin is 25%, how low can Intels price fall before you get a margin call? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Margin call will be made at price

$ or lower

c.	How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Margin call will be made at price

$ or lower

d.

What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Intel 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 Intel? Assume that Intel pays no dividends. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

(i) Rate of return	%
(ii) Rate of return	%
(iii) Rate of return	%

e.	Continue to assume that a year has passed. How low can Intels price fall before you get a margin call? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Margin call will be made at price

$ or lower

6.

Suppose that you sell short 1000 shares of Intel, currently selling for $40 per share, and give your broker $25,000 to establish your margin account.

a.

If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Intel stock is selling at: (i) $46; (ii) $40; (iii) $34? Assume that Intel pays no dividends. (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. Omit the "%" sign in your response.)

b.	If the maintenance margin is 25%, how high can Intels price rise before you get a margin call? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Margin call will be made at price

$ or higher

c.

Redo parts (a) and (b), but now assume that Intel also has paid a year-end dividend of $2 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" & "$" signs in your response.) Margin call will be made at price $ or higher