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Suppose that Xtel currently is selling at $ 5 4 per share. You buy 4 5 0 shares using $ 1 0 , 0 0
Suppose that Xtel currently is selling at $ per share. You buy shares using $ of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is
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a What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: i $; ii $; iii $ What is the relationship between your percentage return and the percentage change in the price of Xtel?
b If the maintenance margin is how low can Xtels 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 $ of your own money?
d What is the rate of return on your margined position assuming again that you invest $ of your own money if Xtel is selling after year at: i $; ii $; iii $ What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends.
e continue to assume that a year has passed. How low can Xtels price fall before you get a margin call?
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