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Please show formulas!!! Suppose that Intel currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money, borrowing the
Please show formulas!!!
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 = |
PLEASE DONT SOLVE
DONT NEED ANYMORE
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