Question
Suppose that Xtel currently is selling at $50 per share. You buy 700 shares using $28,000 of your own money, borrowing the remainder of the
Suppose that Xtel currently is selling at $50 per share. You buy 700 shares using $28,000 of your own money, borrowing the remainder of 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 (c) $44?
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 Xtels price fall before you get a margin call? (Round your answer to 2 decimal places.)
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