Percentage Increase in the Net Worth Assignment | Homework For You

Suppose that Xtel currently is selling at \$74 per share. You buy 300 shares using \$15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 7%.

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a. What is the percentage increase in the net worth of your brokerage account if the price of Xtelimmediately changes to: (i) \$83.62; (ii) \$74; (iii) \$64.38? What is the relationship between your percentage return and the percentage change in the price of Xtel? (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.)

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.)

d. What is the rate of return on your margined position (assuming again that you invest \$15,000 of your own money) if Xtel is selling after 1 year at: (i) \$83.62; (ii) \$74; (iii) \$64.38? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

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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.)Get Finance homework help today

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