Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem 3 (25 marks). Suppose that Intel currently is selling at $20 per share. You buy 1,000 shares using $15,000 of your own money, borrowing
Problem 3 (25 marks). Suppose that Intel currently is selling at $20 per share. You buy 1,000 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 change in the net worth of your brokerage account if the price of Intel immediately changes to: (i) $22; (ii) $20; (iii) $18? (5 marks] b) If the maintenance margin is 25%, how low can Intel's price fall before you get a margin call? [5 marks] c) How would your answer to part b) change if you had financed the initial purchase with only $10,000 of your own money? (5 marks) 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 1 year at: (i) $22; (ii) $20; (iii) $18? Assume that Intel pays no dividends. (5 marks] e) Continue to assume that a year has passed. How low can Intel's price fall before you get a margin call? [5 marks) tal currently selling
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started