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12 February, 05:56

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)

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  1. 12 February, 06:29
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    Suppose that Intel 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%.

    What is the percentage increase in the net worth of your brokerage account if the price of Intel immediately changes to (a) $44; (b) $40; (c) $36?

    Answer:

    Initial worth of brokerage account = 500 * $40 = $20,000

    a). if the price changes to $44, then:

    worth of brokerage account becomes = 500 * $44 = $22,000

    ∴ percentage increase = (22,000 - 20,000) / 20,000 = 10% increase.

    b). if the price changes to $40, then:

    worth of brokerage account becomes = 500 * $40 = $20,000

    ∴ percentage increase = (20,000 - 20,000) / 20,000 = 0 or no increase.

    c). if the price changes to $36, then:

    worth of brokerage account becomes = 500 * $36 = $18,000

    ∴ percentage increase = (18,000 - 20,000) / 20,000 = 10% decrease
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