Answer:
Step-by-step explana
To fill in the table, we can use the following formula:
Account value at end of year = (Initial investment + amount borrowed) x (1 + interest rate) x (1 + mutual fund return rate)
Let's first calculate the amount borrowed based on the margin level:
50% margin level: $1,000 x 50% = $500 borrowed
75% margin level: $1,000 x 75% = $750 borrowed
100% margin level: $1,000 x 100% = $1,000 borrowed
Now, let's use the formula to fill in the table:
Margin level Mutual fund return Account value in stellar market Account value in fair market Account value in terrible market
50% 40% $1,500 $1,050 $525
50% 5% $1,100 $1,027.50 $717.45
50% -30% $700 $665 $465
75% 40% $1,750 $1,225 $612.50
75% 5% $1,312.50 $1,221.88 $853.63
75% -30% $875 $831.25 $581.88
100% 40% $2,000 $1,400 $700
100% 5% $1,500 $1,400 $980
100% -30% $1,000 $950 $665
Note that the account value in each market scenario is lower than the initial investment plus the amount borrowed. This is because Ike has to pay back the borrowed amount with interest at the end of the year. The interest rate is 10%, so the account value has to be higher than the initial investment plus the amount borrowed by at least 10% in order to make a profit.tion: