Business, 21.02.2020 16:19 MansellS5529

Suppose that XTel currently is selling at $40 per share. You buy 500 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 8%. (LO 3-4) a. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (i) $44; (ii) $40; (iii) $36? What is the relationship between your percentage return and the percentage change in the price of XTel? b. If the maintenance margin is 25%, how low can XTcl's price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $10,000 of your own money? 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 one year at (i) $44; (ii) $40; (iii) $36? What is the relationship between your percentage return and the percentage change in the price of XTel? Assume (hat XTel pays no dividends. e. Continue to assume that a year has passed. How low can XTel's price fall before you get a margin call?

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