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

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Finance

Suppose that XTel currently is selling at $50 per share. You buy900 shares using $36,000 of your own money, borrowing the remainderof the purchase price from your broker. The rate on the margin loanis 9%.
a. What is the percentage increase in the net worth of yourbrokerage 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 should be indicated by aminus sign. Round your answers to 2 decimal places.)
b. If the maintenance margin is 20%, how lowcan XTel’s price fall before you get a margin call? (Roundyour answer to 2 decimal places.)
c. How would your answer to requirement 2 wouldchange if you had financed the initial purchase with only $22,500of your own money? (Round your answer to 2 decimalplaces.)
d. What is the rate of return on your marginedposition (assuming again that you invest $36,000 of your own money)if XTel is selling after one year at (a) $56; (b) $50; (c)$44? (Negative values should be indicated by a minus sign.Round your answers to 2 decimal places.)
e. Continue to assume that a year has passed. Howlow can XTel’s price fall before you get a margin call?(Round your answer to 2 decimal places.)

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4.2 Ratings (781 Votes)

Total Purchase cost 50 X 900 45000 You borrow 9000 45000 36000 from yourbroker and invest 36000 of your own funds Your margin account starts out with equity of 36000 a i Equity increases to 56 X 900 9000 41400 Percentage gain 5400 36000 15 ii With See Answer

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Suppose that XTel currently is selling at $50 per share. You buy900 shares using $36,000 of your own money, borrowing the remainderof the purchase price from your broker. The rate on the margin loanis 9%.a. What is the percentage increase in the net worth of yourbrokerage 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 should be indicated by aminus sign. Round your answers to 2 decimal places.)b. If the maintenance margin is 20%, how lowcan XTel’s price fall before you get a margin call? (Roundyour answer to 2 decimal places.)c. How would your answer to requirement 2 wouldchange if you had financed the initial purchase with only $22,500of your own money? (Round your answer to 2 decimalplaces.)d. What is the rate of return on your marginedposition (assuming again that you invest $36,000 of your own money)if XTel is selling after one year at (a) $56; (b) $50; (c)$44? (Negative values should be indicated by a minus sign.Round your answers to 2 decimal places.)e. Continue to assume that a year has passed. Howlow can XTel’s price fall before you get a margin call?(Round your answer to 2 decimal places.)