Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that xtel currently is selling at $50 per share, you buy 700 snares using $28,000 of your own money, borrowing the remainder or the

image text in transcribed

Suppose that xtel currently is selling at $50 per share, you buy 700 snares using $28,000 of your own money, borrowing the remainder or the purchase price from your broker. The rate on the margin loan is 7%. a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to (a) $56 (b) $50: (c) $44? (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) b. If the maintenance margin is 20%, how low can Xtel's price fall before you get a margin call? (Round your answer to 2 decimal places.) Price $ 12.50 c. How would your answer to requirement 2 would change if you had financed the initial purchase with only $17, 500 of your own money? (Round your answer to 2 decimal places.) Strike price $ d. What is the rate of return on your margined position (assuming again that you invest $28,000 of your own money) if Xtel is selling after one year at (a) $56: (b) $50: (c) $44? (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 Xtel's price fall before you get a margin call? (Round your answer to 2 decimal places.) Price $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Handbook Of Traditional And Alternative Investment Vehicles Investment Characteristics And Strategies

Authors: Mark J. P. Anson, Frank J. Fabozzi, Frank J. Jones

1st Edition

0470609737, 978-0470609736

More Books

Students also viewed these Finance questions

Question

What are some of the possible scenes from our future?

Answered: 1 week ago