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Please show formulas in excel Suppose that Intel currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money,
Please show formulas in excel
| Suppose that Intel 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 Intel immediately changes to (i) $44; (ii) $40; (iii) $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 (i) $44; (ii) $40; (iii) $36? What is the relationship between your percentage return and the percentage change in the price of Intel? Assume that Intel pays no dividends. e. Continue to assume that a year has passed. How low can Intel's price fall before you get a margin call? | |||||||||||||||
| Data Input | |||||||||||||||
| Initial share price | $40.00 | ||||||||||||||
| Shares purchases | 500 | ||||||||||||||
| Equity | $15,000.00 | ||||||||||||||
| Interest rate | 8% | ||||||||||||||
| Maintenance margin | 25% | ||||||||||||||
| Borrowed funds | $5,000.00 | ||||||||||||||
| initial percentage equity | -32.60869565 | 0.75 | |||||||||||||
| a. | |||||||||||||||
| i. | New stock price = | $44.00 | What is the relationship between your percentage return and the percentage change in the price of Intel? It increases the return when there is a positive return. However it will also enhance your loss making your loss bigger. | ||||||||||||
| Profit = | $2,000.00 | ||||||||||||||
| Percentage change of net worth (percentage return) | 13.33% | ||||||||||||||
| ii. | New stock price = | $40.00 | |||||||||||||
| Profit = | |||||||||||||||
| Percentage change of net worth (percentage return) | |||||||||||||||
| iii. | New stock price = | $36.00 | c. | ||||||||||||
| Initial share price | 40 | ||||||||||||||
| Profit = | Shares purchases | 500 | |||||||||||||
| Percentage change of net worth (percentage return) | Equity | 10000 | |||||||||||||
| Interest rate | 8.00% | ||||||||||||||
| b. | Margin call price = | $0.00 | Maintenance margin | 25.00% | |||||||||||
| d. | Borrowed funds = | 10000 | |||||||||||||
| i. | New stock price = | $44.00 | Margin call price = | 9875 | ? | ||||||||||
| interest = | 400 | 400 | |||||||||||||
| profit = | $2,000.00 | 1600 | |||||||||||||
| Rate of return = | 13.33% | 10.67 | e. | ||||||||||||
| Margin call price = | |||||||||||||||
| ii. | New stock price = | $40.00 | |||||||||||||
| interest = | |||||||||||||||
| profit = | |||||||||||||||
| Rate of return = | |||||||||||||||
| iii. | New stock price = | $36.00 | |||||||||||||
| interest = | |||||||||||||||
| profit = | |||||||||||||||
| Rate of return = | |||||||||||||||
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Fundamentals Of Investments Valuation And Management
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin
9th Edition
1260013979, 9781260013979
