Harmony Shadwell wants to buy 900 shares of Google, which is currently selling in the market...

Harmony Shadwell wants to buy 900 shares of Google, which is currently selling in the market for $24 a share. Rather than liquidate all her savings, she decides to borrow through her broker. Assume that the margin requirement on common stock is 50%. If the stock rises to $34 a share by the end of the year, show the dollar profit and percentage return that Harmony would earn if she makes the investment with 50% margin. Contrast this to what she'd make if she uses no margin. Assume 9% interest on the borrowed money.

Calculate the dollar net Profit. Round the answers to the nearest dollar.

Without Margin	With 50% Margin
$ 9000	$ _____

Calculate the return on investment. Round the answers to two decimal places.

Without Margin	With 50% Margin
42%	____ %

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Harmony Shadwell wants to buy 100 shares of Google, which is currently selling in the market...

Harmony Shadwell wants to buy 100 shares of Google, which is currently selling in the market for $56 a share. Rather than liquidate all her savings, she decides to borrow through her broker. Assume that the margin requirement on common stock is 50%. If the stock rises to $66 a share by the end of the year, show the dollar profit and percentage return that Harmony would earn if she makes the investment with 50% margin. Contrast this to what...

Suppose that XTel currently is selling at $50 per share. You buy 900 shares using $36,000...

Suppose that XTel currently is selling at $50 per share. You buy 900 shares using $36,000 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) $56; (b) $50; (c) $44? (Leave no cells blank - be certain to enter "0" wherever required. Negative values...

Calculating profits on margined and unmargined investments Claire Gerber wants to buy 600 shares of Google,...

Calculating profits on margined and unmargined investments Claire Gerber wants to buy 600 shares of Google, which is selling in the market for $536 a share. Rather than liquidate all her savings, she decides to borrow through her broker at 5 percent a year. Assume that the margin requirement on common stock is 50 percent. If the stock rises to $635 a share over the next year, calculate the dollar profit and percentage return that Claire would earn if she...

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 ZX Inc. is currently selling at $50 per share. You buy 200 shares, using...

Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using $5,000 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. What is the rate of return on your margined position (assuming again that you invest $5,000 of your own money) if ZX Inc. is selling after one year at (i) $54, (ii) $50, (iii) $46?

Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using...

Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using $5,000 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. Suppose that you sell short 400 shares of ZX Inc., currently selling for $50 per share, what will your rate of return be after one year if ZX Inc. stock is selling at (i) $54, (ii) $50, (iii) $46? Assume...

Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using...

Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using $5,000 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. Continue to assume that a year has passed. How low can ZX Inc.’s price fall before you get a margin call?

Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using...

Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using $5,000 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. 1. What is the profit or loss $ in the net worth of your brokerage account if the price of ZX Inc. changes to $46? 2. What is the profit or loss $ in the net worth of your brokerage...

Suppose the Xenon (XO) currently is selling at $90 per share. You buy 300 shares, using...

Suppose the Xenon (XO) currently is selling at $90 per share. You buy 300 shares, using $20,000 of your own money, and borrow the remainder of the purchase price from your broker. The rate on the margin loan is 6 percent. a. What is the percentage increase in the net wealth of your brokerage account if the price of XO immediately changes to (1)$98 (2)$90 (3)$82 What is the relationship between your percentage return and the percentage change in the...

Suppose that LMN stock currently is selling at $79 per share. You buy 500 shares using...

Suppose that LMN stock currently is selling at $79 per share. You buy 500 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 5%. a. What is the percentage increase in the net worth of your brokerage account if the price of LMN immediately changes to: (i) $87.20; (ii) $79; (iii) $70.80? What is the relationship between your percentage return and the percentage change in...

Subjects