Question

Need help with Part-C-Redo parts a & b but now assume that Xtel also paid a year end dividend of $1.50 per share. The prices in part a should be interpreted as ex-dividend, that is, prices after the dividend has been paid? Answers to the other parts below

1. Suppose that you sell short $1,000 shares of Xtel, currently selling at $30 per share and give your broker $20,000 to establish your margin account
   1. 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 the following assuming no dividends
      1. $35=-25%
      2. $30=0%
      3. $25=25%
   2. If the maintenance margin is 25% how high can Xtel’s price rise before you get a margin call? 1000*30*25%=75000. 20000-7500=12500. 12500/1000=
      1. $12.5 per share. 30+12.5=$42.5 before margin call

Answer 1

Please find the required answer in the below attached picture:

G H I J K Part canswer Total Deposit with Broker 20,000 If the Buying Price is 35 30 Short Position Long Position 30 35 30 30 25 No Of Shares 1000 1000 1000 Loss/(Gain) Dividend Total Return 5000 =+(C9-C8)*011 1500 =1.5*1000 6500 =+SUM(C13:C14) 0=+(E9-E8) *E11 1500 =1.5*1000 1500 =+SUM(E13:E14) -5000 =+(G9-G8)*G11 1500 =1.5*1000 -3500 =+SUM(G13:614) Rate Of Return 0.33 =+C15/$C$4 0.08 =+E15/$C$4 (0.18) =+G15/$C$4 Margin Call before Dividend Dividend Margin Call after Dividend 42.5 1.5 44 =+SUM(C19:C20)