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 shares using $28.000 of your own money, borrowing the remainder of the

image text in transcribed
image text in transcribed
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%. Required: o. What is the percentage increase in the net worth of your brokerage account if the price of XTel immedlately changes to (i) $56; (ii) $50; (ii) \$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.) c. How would your answer to requirement b would change if you had financed the initial purchase with only $17,500 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 $28,000 of your own money) if X Tel is selling after one year at (i) $56; (ii) $50; (iii) $44 ? (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) -. Continue to assume that a year has passed. How low can XTel's price fall before you get a margin call? Note: Assume maintenance margin of 20% (Round your answer to 2 decimal places.)

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

A Study In Public Finance

Authors: A. C. Pigou

1st Edition

1443722766, 978-1443722766

More Books

Students also viewed these Finance questions