Suppose that XTel currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money, borrowing t
Posted: Sat Nov 27, 2021 5:17 pm
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%
a) If you earn no interest on the funds in your margin account,
what will be your rate of return after one
year if XTel stock is selling at (i) $44; (ii) $40;
(iii) $36? Assume that XTel has paid a year-end
dividend of $1 per share.
b) If the maintenance margin is 25%, how high can XTel’s price
rise before you get a margin call? Assume that XTel
has paid a year-end dividend of $1 per share.
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%
a) If you earn no interest on the funds in your margin account,
what will be your rate of return after one
year if XTel stock is selling at (i) $44; (ii) $40;
(iii) $36? Assume that XTel has paid a year-end
dividend of $1 per share.
b) If the maintenance margin is 25%, how high can XTel’s price
rise before you get a margin call? Assume that XTel
has paid a year-end dividend of $1 per share.