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Problem 3-12 Suppose that you sell short 250 shares of Xtel, currently selling for $100 per share,...

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Advance Math

Problem 3-12

Suppose that you sell short 250 shares of Xtel, currentlyselling for $100 per share, and give your broker $15,000 toestablish your margin account.

a. If you earn no interest on the funds in yourmargin account, what will be your rate of return after one year ifXtel stock is selling at: (i) $115; (ii) $100; (iii) $95? Assumethat Xtel pays no dividends. (Leave no cells blank - becertain to enter \"0\" wherever required. Negative values should beindicated by a minus sign. Round your answers to 2 decimalplaces.)

b. If the maintenance margin is 25%, how highcan Xtel’s price rise before you get a margin call? (Roundyour answer to 2 decimal places.)

c. Redo parts (a) and (b),but now assume that Xtel also has paid a year-end dividend of $1per share. The prices in part (a) should be interpreted asex-dividend, that is, prices after the dividend has been paid.(Negative values should be indicated by a minus sign. Roundyour answers to 2 decimal places.)

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