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Suppose that Xtel currently is selling at $44 per share. You buy 500 shares using $18,000...

Suppose that Xtel currently is selling at $44 per share. You buy 500 shares using $18,000 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: (i) $50.60; (ii) $44; (iii) $37.40? What is the relationship between your percentage return and the percentage change in the price of Xtel?

b. What is the rate of return on your margined position (assuming again that you invest $18,000 of your own money) if Xtel is selling after 1 year at: (i) $50.60; (ii) $44; (iii) $37.40? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends.

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Home nert Page Layout Formulas Data Review View dd-Ins Cut E AutoSum ー E ゴWrap Text ta copy ▼ B I 프 . 灬 ▲· 逻锂函Merge & Center. $, % , 弼, conditional Format eCell Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Alignment Number Cells Editing DZ EB EC ED EF EG EH El EJ EK EL EM 47 48 49 50 51 52 53 54 PURCHASE VALUE OF SHARES 500 X 44 22000 OWN FUNDS 18000 BORROWED FUNDS = 37.4 NOW PRICE IS VALUE OF INVESTMENT BORROWED FUNDS NET WORTH % INCREASE IN NET WORTH 50.6 25300 (50.6 X 500) 22000 (44 X 500) 18700 (37.4 X 500) 4000 21300 18.33% 4000 18000 0.00% 4000 14700 18.33% 56 57 58 59 60 61 62 63 64 65 (21300-18000)/18000 (18000-18000)/18000 (14700-18000)/18000 % IN CREASE IN STOCK PRICE 15.00% 0.00% 15.00% (50.6-44)/44 (44-44)/44 (37.4-44)/44 POSITIVE RELATIONSHIP, IF PRICE RISE, NET WORTH RISE & VICE VERSA AND HIGHER THE CHANGE IN NETWORTH COMPARED TO CHANGE IN PRICE 4 EV PE EPS DIV ABNORMAL APV ROSS deberk MARGIN MONEY al tax . PB ROPİ eEVA MVA LEVERAGED BUY SWAP distress BRIGHAN CAP GAIN 福 130% 27-01-2019Home nert Page Layout Formulas Data Review View dd-Ins s Cut ta copy. E AutoSum Wrap Text ▲· 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste B I 프 . 灬 Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard EE83 DZ Font Alignment Number Cells EA EB EC ED EF EG EH El EJ EK EL EM 65 NOW PRICE IS VALUE OF INVESTMENT BORROWED FUNDS NET WORTH % RETURN 50.6 37.4 22000 (44 X 500) 18700 (37.4 X 500) 67 68 69 70 71 72 73 74 75 76 25300 (50.6X 500) 4000 21300 18.33% 4000 18000 0.00% 4000 14700 18.33% (21300-18000)/18000 (18000-18000)/18000 (14700-18000)/18000 POSITIVE RELATIONSHIP, IF PRICE RISE, NET WORTH RISE & VICE VERSA AND HIGHER THE CHANGE IN NETWORTH COMPARED TO CHANGE IN PRICE 78 79 80 81 82 83 /4 1 r -1 EV PE EPS DIV、 ABNORMAL : APV ROSS i deberk | MARGIN MONEY, marginal tax PB ROPİ te EVA MVALEVERAGED BUYSWAPdistressBRIGHAN CAP GAIN 福 130% 09:29 27-01-2019

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