How low can xtel price fall before you get margin call

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Reference no: EM131859789

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. If the maintenance margin is 20%, how low can Xtel's price fall before you get a margin call?

B. How would your answer to requirement 2 change if you had finances the initial purchase with only $17,500 of your own money? (strike price)

C. 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?

D. Continue to assume that a year has passed, how low can Xtel's price fall before you get a margin call?

Reference no: EM131859789

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