Question

Suppose that XTel currently is selling at $40 per share. You buy 800 shares using $25,600 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 10%.

a. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (a) $44; (b) $40; (c) $36? (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.)

a. Percentage gain	_____%
b. Percentage gain	_____%
c. Percentage gain	_____%

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

_____

c. How would your answer to requirement 2 would change if you had financed the initial purchase with only $16,000 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 $25,600 of your own money) if XTel is selling after one year at (a) $44; (b) $40; (c) $36? (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

a. Rate of return	______%
b. Rate of return	______%
c. Rate of return	______%

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

______

Answer 1