Instructions: Show all your work to get partial credit. Answers without any work-even correct-will not receive any credit. Good Luck! 1. Suppose that Apple 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% a. What is the percentage increase in the net worth of your brokerage account if the price of Apple immediately changes to $36? What is the relationship between your percentage return and the percentage change in the price of Intel? b. If the maintenance margin is 25%, how low can Intel's price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $10,000 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $15,000 of your own money) if Intel is selling after one year at $40? Assume that Intel pays no dividends. 2. A benchmark index has three stocks priced at $23, S43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, S41, and $59, what is the new index value? Instructions: Show all your work to get partial credit. Answers without any work-even correct-will not receive any credit. Good Luck! 1. Suppose that Apple 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% a. What is the percentage increase in the net worth of your brokerage account if the price of Apple immediately changes to $36? What is the relationship between your percentage return and the percentage change in the price of Intel? b. If the maintenance margin is 25%, how low can Intel's price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $10,000 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $15,000 of your own money) if Intel is selling after one year at $40? Assume that Intel pays no dividends. 2. A benchmark index has three stocks priced at $23, S43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, S41, and $59, what is the new index value
