Question
Please answer both parts 1. Ike, an investor, is considering opening a margin account and investing $1,000 in Mikes mutual fund. The terms of the
Please answer both parts
1.
Ike, an investor, is considering opening a margin account and investing $1,000 in Mikes mutual fund. The terms of the account require that he pay back the amount he borrowed on the margin by the end of the year with 10 percent interest. Ike is trying to decide what level of margin he wants. For example, if he chooses an account at the level of 50 percent, the bank will let him borrow and invest an additional $500, or 50 percent of his original $1,000.
Complete the table below by filling in Ikes account value at the end of the year, given varying levels of the margin account and mutual fund performance. Assume that Mikes mutual fund will return 35 percent per year in a stellar market and 5 percent per year in a fair market, and that in a terrible market, it will lose 30 percent.
Instructions: Round your answers to the nearest dollar.
Margin account level | Account value in a stellar market | Account value in a fair market | Account value in a terrible market |
No margin | $ | $ | $ |
60% | $ | $ | $ |
100% | $ | $ | $ |
150% | $ | $ | $ |
200% | $ | $ | $ |
2.
Consider a stock whose value increases across an 8-year period as shown in the table.
Instructions: Round your answers to two decimal places.
a. Calculate the percentage change in the value of the stock from year to year.
Year | Stock Value | Percent Change |
1 | $100.00 | |
2 | 109.00 | % |
3 | 120.00 | % |
4 | 132.00 | % |
5 | 148.00 | % |
6 | 220.00 | % |
7 | 330.00 | % |
8 | 520.00 | % |
b. Calculate the percentage change in the value of the stock across the entire 8-year period.
%
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