Question

Suppose that XTel 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%. a. 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) $36

Answer 1

Initial net worth = $40* 500= $20000

a) Net worth of brokerage account = 44 * 500 = $22000

Percentage increase in the net worth of your brokerage account=[22000-20000]/20000 * 100= 10%

b) Net worth of brokerage account = 40 * 500 = $20000

Percentage increase in the net worth of your brokerage account=[20000-20000]/20000 * 100= 0%

c)If XTel's price changes to $36, the net worth of the brokerage account can be calculated as follows:

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

Percentage decrease in the net worth of your brokerage account=[18000-20000]/20000 * 100= -10%

Step-by-step explanation: