Answered step by step
Verified Expert Solution
Link Copied!

Question

...
1 Approved Answer

need complete answer to this question: dont copy and paste Chapter 10 - Secondary Markets - Stocks Problems 10-7. Suppose that 7X Inc. is currently

need complete answer to this question: dont copy and paste

image text in transcribed

Chapter 10 - Secondary Markets - Stocks Problems 10-7. Suppose that 7X Inc. is currently selling at $50 per share. You buy 200 shares, using $5,000 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. a. What is the percentage increase in the net worth of your brokcrage account if the price of ZX Inc. changes to (1) $54, (ii) $50, (ii) $46? b. If the maintenance margin is 25%, how low can ZX Inc.'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 $2,000 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $5,000 of your own money) if ZX Inc. is selling after one year at (1) $54, (ii) $50. (11) S46? c. Continue to assume that a year has passed. How low can ZX Inc.'s price fall before you get a margin call? f. Suppose that you sell short 400 shares of ZX Inc., currently selling for $50 per share, what will your rate of return be after one year if ZX Inc. stock is selling at 1) $54, (ii) $50, (iii) $46? Assume that ZX Inc. pays no dividends

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Horngrens Financial and Managerial Accounting

Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura

5th edition

978-0133866292

Students also viewed these Accounting questions