Suppose that Xtel is currently selling at $50/share. You buy 700 shares using $28,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 7%.

A. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to (a) $56; (b) $50; (c) $44
B If the maintenance margin is 20%, how low can Xtel's price fall before you get a margin call?
C. How would your answer to requiremwnt 2 change if you had finances the initial purchase with only $17,500 of your own money? (strike price)
D. What is the rate of return on your margined position (assuming you invest $28,000 of yur own money) if Xtel is selling after one year at (a) $56 (b) $50 (c) $44?
E. Continue to assume that a year has passed, how low can Xtel's price fall before you get a margin call?

Explanation:

A. total value of purchase = 700*35 = 35,000

broker loan = 35,000-28,000 = 7,000

your contribution = 28,000

interest = 7% * 7000 = 490

a) % increase = (56-50)*700/28000 = 15%

b) % increase = 0%; price is same

c)% increase = (44-50)*700/28,000 = -15.00%

B.

80% = 7,000

20% = 7,000*20/80 = 1,750

reduction in value = 28,000 - 1,750 = 26,250

reduction in price per share = 26,250/700 = 37.5

price for margin call = 50 - 37.5 = 12.5

C broker contribution = 10,500

80% = 10,500

20% = 10,500*20/80 = 2,625

loss allowed per share = (17,500 - 2,625)/700 = 20.54

price for margin call = 50 - 20.54 = 29.46

Explanation: The total cost of the purchase is: $50 X 700 = $35,000.

$7,000 is borrowed from the broker.

A. (a) Percentage increase when price changes to ($56 x 700) - $7,000 = $39,200 - $7,000 = $32,200

Percentage gain = ($32,200 - $28,000)/$28,000 = $4,200/$28,000 = 0.15 = 15%.

(b) Percentage increase when the price remains the same = 0.

(c) Percentage increase when the price falls to ($44 x 700) - $7,000 = $30,800 - $7,000 = $23,800.

Percentage gain = ($23,800 - $28,000)/$28,000 = -$4,200/$28,000 = -0.15 =-15%.

B. The value of 700 shares is 700P, where P is price. Equity is (700P - $7,000). Margin call will be received when:

(700P - $7,000)/700P = 0.80 = 80%

20% = (7,000 x 20)/80 = $1,750

Reduction in value = $28,000 - $1,750

$26,250

Reduction in price per share:

$26,250/700 = $37.5

Margin call = $50 - $37.5 = $12.5 or lower.

C. Contribution of broker = $10,500

80% = $10,500

20% = ($10,500 x 20)/80 = $2,625

Loss allowed per share = ($17,500 - $2,625)/700 = $20.54

Margin call = 50 - 20.54 = $29.46 or lower.

D. Since the margin loan is 7%, by the end of the year the amount owed to the broker grows to:

$7,000 x 1.07 = $7,490

(i) Rate of return after one year at $56

(700 x 56) - 7,490 - 28,000/28,000 = 3,710/28,000 = 0.1325 = 13.25%.

(ii) Rate of return after one year at $50

(700 x 50) - 7,490 - 28,000/28,000 = -490/28,000 = -0.0175 = -1.75%.

(iii) Rate of return after one year at $44

(700 x 44) - 7,490 - 28,000/28,000 = -4,690/28,000 = -0.1675 = -16.75%.

E. 80% = $7,300

20% = $7,300 x 20/80 = $1,825

Reduction in value = $28,000 - $1,825 = $26,175

Reduction in price per share = $26,175/700 = $37.39

Margin call = $50 - $37.39 = $12.61 or lower.

b. a single paragraph.

a paragraph is a series of sentences that are organized and make sense, and are all related to a single topic . almost every piece of writing you do that is longer than a few sentences should be organized into paragraphs. this is because paragraphs show a reader where the subdivisions of an essay begin and end, and thus the reader see the organization of the essay into subjects in order to be able to understand its main points.

d, rjskdndjsndbdnsjdbxbc