Suppose that Xtel currently is selling at $54 per share. You buy 450 shares using $10,000...

Suppose that Xtel currently is selling at $54 per share. You buy 450 shares using $10,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 7%.

If the maintenance margin is 25%, how low can Xtel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)

How would your answer to (b) change if you had financed the initial purchase with only $12,150 of your own money? (Round your answer 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? (Round your answer to 2 decimal places.)

Expert Solution

jeff jeffy answered 4 months ago

Suppose that XTel currently is selling at $40 per share. You buy 500 shares using $15,000...

Suppose that XTel currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. b. If the maintenance margin is 25%, how low can XTel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)

Suppose that XTel currently is selling at $50 per share. You buy 500 shares using $15,000...

Suppose that XTel currently is selling at $50 per share. You buy 500 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 10%. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (i) $55; (ii) $50; (iii) $45?

Suppose that Xtel currently is selling at $40 per share. You buy 500 shares using $15,000...

Suppose that Xtel currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. 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...

Suppose that Xtel currently is selling at $72 per share. You buy 400 shares using $22,000...

Suppose that Xtel currently is selling at $72 per share. You buy 400 shares using $22,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 9%. a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $79.92; (ii) $72; (iii) $64.08? What is the relationship between your percentage return and the percentage change in the...

Suppose that Xtel currently is selling at $40 per share. You buy 800 shares using $25,600...

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...

Suppose that Xtel currently is selling at $50 per share. You buy 800 shares using $30,000...

Suppose that Xtel currently is selling at $50 per share. You buy 800 shares using $30,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to (a) $55; (b) $50; (c) $45? (Leave no cells blank - be certain to enter "0" wherever required. Negative values...

Suppose that XTel currently is selling at $50 per share. You buy 500 shares using $20,000...

Suppose that XTel currently is selling at $50 per share. You buy 500 shares using $20,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. 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...

Suppose that Xtel currently is selling at $66 per share. You buy 500 shares using $20,000...

Suppose that Xtel currently is selling at $66 per share. You buy 500 shares using $20,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%. a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $69.63; (ii) $66; (iii) $62.37? What is the relationship between your percentage return and the percentage change in the...

Suppose that XTel currently is selling at $50 per share. You buy 400 shares using $13,000...

Suppose that XTel currently is selling at $50 per share. You buy 400 shares using $13,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 9%. a. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (a) $54; (b) $50; (c) $46? (Leave no cells blank - be certain to enter "0" wherever required. Negative values...

Suppose that XTel currently is selling at $50 per share. You buy 600 shares using $22,500...

Suppose that XTel currently is selling at $50 per share. You buy 600 shares using $22,500 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. a. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (a) $55; (b) $50; (c) $45? (Leave no cells blank - be certain to enter "0" wherever required. Negative values...

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