Question

# Suppose that Xtel currently is selling at \$40 per share. You buy 500 shares using \$15,000...

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. 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 should be indicated by a minus sign. Round your answers to 2 decimal places.) a. Percentage gain % b. Percentage gain % c. Percentage gain %.

 a) Price of Xtel immediately changes to \$44 Initial Net Worth \$15,000.00 Borrowed Amt \$5,000.00 Total investment = 500 shares x \$40 \$20,000.00 New Net worth = \$44 x 500 shares - 5000 \$17,000.00 Percentage Gain = (\$17000 - \$15000)/15000 13.33% b) Price of Xtel immediately changes to \$40 Initial Net Worth \$15,000.00 Borrowed Amt \$5,000.00 Total investment = 500 shares x \$40 \$20,000.00 New Net worth = \$40 x 500 shares - 5000 \$15,000.00 Percentage Gain = (\$15000 - \$15000)/15000 0.00% c) Price of Xtel immediately changes to \$36 Initial Net Worth \$15,000.00 Borrowed Amt \$5,000.00 Total investment = 500 shares x \$40 \$20,000.00 New Net worth = \$36 x 500 shares - 5000 \$13,000.00 Percentage Gain = (\$13000 - \$15000)/15000 -13.33%