Question
Suppose that XTel currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money, borrowing the remainder of the
Suppose that XTel 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%.
c. How would your answer to requirement 2 would change if you had financed the initial purchase with only $10,000 of your own money? (Round your answer to 2 decimal places.)
d. What is the rate of return on your margined position (assuming again that you invest $15,000 of your own money) if XTel is selling after one year at
(a) $44; (b) $40; (c) $36?
(Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) e. Continue to assume that a year has passed. How low can XTels price fall before you get a margin call? (Round your answer to 2 decimal places.)
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