Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%. Required: a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? b. If the maintenance margin is 25%, how low can Xtel's 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 $5,750 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? 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 Xtel's price fall before you get a margin call? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E
Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%. Required: a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? b. If the maintenance margin is 25%, how low can Xtel's 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 $5,750 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? 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 Xtel's price fall before you get a margin call? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the
remainder of the purchase price from your broker. The rate on the margin loan is 6%.
Required:
a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i)
$48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of
Xtel?
b. If the maintenance margin is 25%, how low can Xtel's 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 $5,750 of your own money?
d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling
after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? 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 Xtel's price fall before you get a margin call?
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C Required D
Required E
How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money?
Note: Round your answer to 2 decimal places.
Margin call will be made at price
or lower](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F89671352-7d4c-4590-b3bf-b7764fc53a67%2Ff6d30186-5a47-4cd1-9773-8b12a40e8e2e%2Fqz0dado_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the
remainder of the purchase price from your broker. The rate on the margin loan is 6%.
Required:
a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i)
$48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of
Xtel?
b. If the maintenance margin is 25%, how low can Xtel's 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 $5,750 of your own money?
d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling
after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? 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 Xtel's price fall before you get a margin call?
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C Required D
Required E
How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money?
Note: Round your answer to 2 decimal places.
Margin call will be made at price
or lower
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Foundations Of Finance](https://www.bartleby.com/isbn_cover_images/9780134897264/9780134897264_smallCoverImage.gif)
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
![Fundamentals of Financial Management (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781337395250/9781337395250_smallCoverImage.gif)
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
![Corporate Finance (The Mcgraw-hill/Irwin Series i…](https://www.bartleby.com/isbn_cover_images/9780077861759/9780077861759_smallCoverImage.gif)
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education