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