Suppose that Xtel currently is selling at $30 per share. You buy 600 shares using $13,500 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 (a) $33; (b) $30; (c) $27? (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 25%, 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 $9,000 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 $13,500 of your own money) if Xtel is selling after one year at (a) $33; (b) $30; (c) $27? (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 $