Question

Suppose that you sell short 400 shares of Xtel, currently selling for $50 per share, and give your broker $8,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $54; (ii) $50; (iii) $44? Assume that Xtel pays no dividends. (Leave no cells blank - be certain to enter "O" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) Rate of return Rate of return Rate of return iii. b. If the maintenance margin is 25%, how high can Xtel's price rise before you get a margin call? (Round your answer to 2 decimal places.) Margin call will be made at price f o r higher

Answer 1

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- 2x Find & Select PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Σ AutoSum : A Calibri 11AA = = = Dr Wrap Text General Ea Copy Fill Paste B I U B- A E E E s FMerce Merge & Center - Center $ -% % 4.0 .00 . Format Painter Conditional Format Cell Insert Delete Format Sort & Formatting as Table Styles 2 Clear Filter Clipboard Font C Alignment Number Styles Cells Editing EF623 e foc EA EB EC ED EE E F EG EH EL EJ Formula Bar EL 623 624 625 626 XTEL SHORTED 627 PURCHASE VALUE OF SHARES = 400 X 50 = 20000 628 OWN FUNDS = 8000 629 TOTAL ASSETS = 28000 E M EN 630 BORROWED FUNDS = 12000 а 50 NOW PRICE IS COST OF COVERING SHORT LESS : TOTAL ASSETS VALUE OF EQUITY RATE OF RETURN = 631 632 633 634 635 636 637 638 639 640 641 642 643 H Rea 54 21600 [54 X 400] 28000 6400 -20.00% [6400/8000 - 1] 20000 [50 X 400] 28000 8000 0.00% [8000/8000 - 1] 44 17600 (44 X 400] 28000 10400 30.00% [10400/8000 - 1] PRICE = (TOTAL ASSETS/NO OF SHARES)/(1+MAINTENANCE MARGIN) PRICE = (28000/400)/(1+0.25) = 56 OR HIGHER STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS I HIGH LOW TARGET PRICE ferences price quote EVA MVAJ 90 120% 9 * 10 . 0 + 06:37 28-11-2019 B ENG

% Cut PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins - 2x Σ AutoSum : A Calibri 11AA = = = Dr Wrap Text General E Copy Fill Paste B I U B- E A E E s FMerce Merge & Center - Center $ -% % 4.0 .00 Format Painter . Conditional Format Cell Insert Delete Format Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing EF661 fax EA EB ECEDEE EFEG EH EL EJEK ELEMEN 642 643 644 PURCHASE VALUE OF SHARES = 400 X 50 = 20000 645 OWN FUNDS = 8000 646 TOTAL ASSETS = 28000 647 648 BORROWED FUNDS = 12000 649 650 NOW PRICE IS 54 50 44 651 COST OF COVERING SHORT 21600 [54 X 400] 20000 [50 X 400] 17600 [44 X 400] 652 COST OF COVERING DIVIDEND 800 [2 x 400] 800 [2 X 400] 800 [2 X 400] 653 LESS : TOTAL ASSETS 28000 28000 28000 654 VALUE OF EQUITY 5600 7200 9600 655 RATE OF RETURN = -30.00% -10.00% 20.00% 656 [5600/8000 - 1] [7200/8000 - 1] [9600/8000 - 1] 657 658 PRICE = ((TOTAL ASSETS- DIVIDEND PAID)/NO OF SHARES)/(1+MAINTENANCE MARGIN) 659 PRICE = ((28000-800)/400)/(1+0.25) = 54.4 OR HIGHER 660 661 662 H HIGH LOW TARGET PRICE STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote EVA MVAJ I Rea ferences 90 120% 0 + 06:37 . B 9 * 10 ENG 28-11-2019