What is the percentage increase in the net worth

Reference no: EM132178225

Question - Suppose that XYZ currently is selling at $18 per share. You buy 1,000 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. What is the percentage increase in the net worth of your brokerage account if the price of XYZ immediately changes to: (i) $20; (ii) $22; (ii) $15? What is the relationship between your percentage return and the percentage change in the price of XYZ?

b. If the maintenance margin is 25%, how low can XYZ 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 XYZ is selling after 1 year at: (i) $22; (ii) $20; (ii) $18? What is the relationship between your percentage return and the percentage change in the price of XYZ? Assume that XYZ pays no dividends.

e. Continue to assume that a year has passed. How low can XYZ price fall before you get a margin call?

Reference no: EM132178225

Questions Cloud

Will wages rise above market equilibrium or fall below it : In each scenario, will wages rise above the market equilibrium or fall below it? All but one of the factories in a town go out of business.

Measure of damages might be available to plaintiff : Discuss what the measure of damages might be available to the plaintiff in that action.

Define why your chosen issue is a social problem : Define why your chosen issue is a ‘social problem' by documenting the magnitude (number affected) and scope (who is affected)of the issue.

What does the given imply about her opportunity cost : Anna is indifferent between receiving $200 today or $230 in a month. What does this imply about her opportunity cost in the coming month?

What is the percentage increase in the net worth : What is the percentage increase in the net worth of your brokerage account if the price of XYZ immediately changes to: (i) $20; (ii) $22

What options does OSHA have regarding the proposed rule : What obligation does OSHA have to consider the objections and the materials submitted by PPBC? What options does OSHA have regarding the proposed rule?

Why farah is the one who delays payment : Colton has a choice between $100 today and $150 in three months. Farah has a choice between $100 today and $125 in three months. Colton chooses $100 today.

Generalizations and stereotyping related to generation : Specifically address how Joanne and Julia can help reduce the use of generalizations and stereotyping related to generation.

How long will take before you can access the money : Suppose your aunt invests $2,000 for you. You are not allowed to have the money until the original amount doubles. Your aunt's investment earns 10 percent.

User Account

All Pages