Question

Suppose that LMN stock currently is selling at $52 per share.
You buy 500 shares using $20,000 of your own money, borrowing the
remainder of the purchase price from your broker. The rate on the
margin loan is 9%.

**a.** What is the percentage increase in the net
worth of your brokerage account if the price of LMN
*immediately* changes to: (i) $56.68; (ii) $52; (iii)
$47.32? What is the relationship between your percentage return and
the percentage change in the price of LMN? **(Leave no cells
blank - be certain to enter "0" wherever required. Negative values
should be indicated by a minus sign. Round your answers to 2
decimal places.)**

**b.** If the maintenance margin is 25%, how low can
LMN's price fall before you get a margin call? **(Round your
answer to 2 decimal places.)**

**c.** How would your answer to (*b*) change if
you had financed the initial purchase with only $13,000 of your own
money? **(Round your answer to 2 decimal
places.)**

**d.** What is the rate of return on your margined
position (assuming again that you invest $20,000 of your own money)
if LMN is selling *after 1 year* at: (i) $56.68; (ii) $52;
(iii) $47.32? What is the relationship between your percentage
return and the percentage change in the price of LMN? Assume that
LMN pays no dividends. **(Negative values should be indicated
by a minus sign. Round your answers to 2 decimal
places.)**

**e.** Continue to assume that a year has passed. How
low can LMN's price fall before you get a margin call?
**(Round your answer to 2 decimal places.)**

Answer #1

Suppose that Xtel currently is selling at $56 per share. You buy
500 shares using $20,000 of your own money, borrowing the remainder
of the purchase price from your broker. The rate on the margin loan
is 6%.
a. What is the percentage increase in the net
worth of your brokerage account if the price of Xtel
immediately changes to: (i) $58.80; (ii) $56; (iii)
$53.20? What is the relationship between your percentage return and
the percentage change in the...

Suppose that Xtel currently is selling at $40 per share. You buy
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is 8%. a. What is the percentage increase in the net worth of your
brokerage account if the price of Xtel immediately changes to (a)
$44; (b) $40; (c) $36? (Leave no cells blank - be certain to enter
"0" wherever required. Negative values...

Suppose that Intel currently is selling at $20 per share. You
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You are bullish on Telecom stock. The current market price is
$400 per share, and you have $25,000 of your own to invest. You
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of 7% per year and invest $50,000 in the stock.
a. What will be your rate of return if the
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be indicated by a...

You are bullish on Google stock. The current market price is $52
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per year and invest $26,000 in the stock.
a. What will be your rate of return if the
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places.)
b. How...

Suppose you bought 1,050 shares of stock at an initial price of
$55 per share. The stock paid a dividend of $0.64 per share during
the following year, and the share price at the end of the year was
$50.
a. Compute your total dollar return on this
investment. (A negative value should be indicated by a
minus sign.)
b. What is the capital gains yield? (A
negative value should be indicated by a minus sign. Do not round
intermediate...

Suppose you bought 650 shares of stock at an initial price of
$48 per share. The stock paid a dividend of $.50 per share during
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$43.
a. Compute your total dollar return on this
investment. (A negative value should be indicated by a
minus sign.)
Dollar return:
b. What is the capital gains yield? (A
negative value should be indicated by a minus sign. Do not...

Dée Trader opens a brokerage account and purchases 100 shares of
Internet Dreams at $52 per share. She borrows $2,800 from her
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is 7%.
a. What is the margin in Dée’s account when she
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b. If the share price falls to $30 per share by
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(Round your answer to 2...

OneChicago has just introduced a single-stock futures contract
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a.
If Brandex stock now sells at $180 per share, what should the
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Omit the "$" sign in your response.)
Futures
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$
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You are bullish on Telecom stock. The current market price is
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b. How...

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