Suppose that Xtel is currently selling at $50/share. You buy 700 shares using $28,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 7%.
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
B. If the maintenance margin is 20%, how low can Xtel's price fall before you get a margin call?
C. How would your answer to requiremwnt 2 change if you had finances the initial purchase with only $17,500 of your own money? (strike price)
D. What is the rate of return on your margined position (assuming you invest $28,000 of yur own money) if Xtel is selling after one year at (a) $56 (b) $50 (c) $44?
E. Continue to assume that a year has passed, how low can Xtel's price fall before you get a margin call?