# Suppose that Xtel currently is selling at \$50 per share. You buy 500 shares using \$17,500 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 (i) \$56; (ii) \$50; (iii) \$44? b. If the maintenance margin is 30%, how low can Xtel's price fall before you get a margin call? c. How would your answer to (b) would change if you had financed the initial purchase with only \$12,500 of your own money? d. What is the rate of return on your margined position (assuming again that you invest \$17,500 of your own money) if Xtel is selling after one year at (i) \$56; (ii) \$50; (iii) \$44? e. Continue to assume that a year has passed. How low can Xtel's price fall before you get a margin call?

The value of the 500 shares at the time of the purchase is \$25,000 therefore \$7500 had to be borrowed from the broker. With an immediate price change, we don’t need to worry about the interest rate on the loan. If the price

of Xtel stock jumps to p, say, the return on the investment, denoted rp, is given

by;

Explanation:.A) rp =

p × 500−7,500−17,500/17,500

=

500p − 25, 000/15, 000

Hence: r56 =500(56)-25,000/15,000= 28000-25,000/15,000 =20%

r50

= 500(50)-25,000/15,000= 25,000-25,000/15,000= 0%

r44 = 500(44)-25,000/15,000= 22,000-25,000/15,000= -20%

B) For a price p, the margin ratio is

500p − 7,500/500p

A margin ratio 0.3 implies that

500p − 7,500/500p= 0.3=>500p − 7,500=150p

=>p= 7500/350= 21.43

C)For a price p, the margin ratio is

500p − 12,500/500p

A margin ratio 0.3 implies that

500p − 12,500/500p= 0.3=>500p − 12,500=150p

=>p= 12,500/350= 35.71

D). Let p denote the price of Xtel’s stock at the end of the year. The return on this investment, rp, is then

rp =500p − (1.08)7,500 − 17,500/17,500=

500p − 25, 400/17,500

Thus r56= 500(56)-25,400/17,500= 14.86%

r50 = 500(50)-25,400/17,500 = -2.29

and

r44= 500(44)-25,400/17,500= -19.43%

E) For a price p, the margin ratio is then

500p − 7,900/500p

Thus a margin ratio 0.3

implies that;

500p − 5,900/500p

= 0.3 => 500p − 5,900 = 150p

=> p = 5,900/350

= 16.86

## Related Questions

A loan of 1000 is taken out at an annual effective interest rate of 5%. The loan will be repaid using the Sinking Fund Method. That is, level annual interest payments are made at the end of each year for 10 years, and the principal amount for the loan is repaid at the end of 10 years by making equal size payments into the fund at the end of each year for 10 years. If the sinking fund earns an annual effective interest rate of 4%, then find the difference between the interest payment on the loan and the interest earned by the sinking fund in the fifth year. Round your answer to the nearest whole number.

Interest paid each year = 5% of 1000 = \$50

\$1000 is to be paid at the end of 10 years.So payment each year = pmt(rate,nper,pv,fv) where rate = 0.04,nper=10 and fv =1000.

Payment into the fund =pmt(0.04,10,0,1000) = \$83.29 each year

Value of the sinking fund at the end of the 4th year =pv(rate,nper.pmt) =pv(0.04,4,83.29) = 302.34

Interest earned by sinking fund in year 5 = 0.04*302.34 = 12.09

Interest on loan in 5th year = \$50

So difference between the interest payment on the loan and the interest earned by the sinking fund in the fifth year. = 50-12.09 = 37.91 = \$38 (to nearest whole number)

The question that starts with "On a scale from 1-5..." Is a closed ended question. A closed ended question is usually a yes or no question but in this case its a question that requires a simple, precise, answer.  All of the other questions would require a long response.

Rocky Mountain Bikes' Colorado warehouse has 50 Pack Rat Deluxe Bike Baskets in stock at a moving average price of \$25.13 each. They purchase 300 from Rat-a-tat-tat Bike Products at \$25.54 each and transfer 100 from their Texas warehouse where the moving average price is \$25.25 each. Assuming all of the baskets mentioned above have been received in Colorado and there have been no sales from Colorado, what is the current moving average price and total inventory valuation for Pack Rat Deluxe Bike Baskets in the Colorado warehouse.

Rocky Mountain Bikes

Current moving average price is:

\$25.43

Total inventory valuation is:

\$11,443.50

Explanation:

Item             Qty     Price         Moving      Total       Total Value

average price   Qty

Inventory     50                       \$25.13         50        \$1,256.50

Purchase   300    \$25.54      \$25.48      350         \$8,918.50

Transfer     100    \$25.25      \$25.43      450        \$11,443.50

Rocky Mountain Bikes' Colorado warehouse uses the moving average price to value the inventory.  The moving average price is computed by creating a constantly updated average price.  This smoothens the price data.

Dudley is a manager at the SuperCuts franchise. He has had to fire two employees because they were treating walk-in customers with disdain and thus turning away business. Once those employees were gone, he trained new employees on how to greet customers. Business has been improving and he has realized how important personnel are for a retail business. What role do the personnel play at his SuperCuts franchise?

they are the interface between the brand and the customer

Explanation:

Based on the information provided within the question it can be said that the personnel in SuperCuts are the interface between the brand and the customer. The personnel are the ones that interact on a daily basis with the shoppers and provide all the information that they need regarding the SuperCut's brand in order to generate sales.

A. The August 31 balance shown on the bank statement is \$9,799. b. There is a deposit in transit of \$1,247 at August 31.
c. Outstanding checks at August 31 totaled \$1,870.
d. Interest credited to the account during August but not recorded on the company's books amounted to \$115.
e. A bank charge of \$37 for checks was made to the account during August. Although the company was expecting a charge, the amount was not known until the bank statement arrived.
f. In the process of reviewing the canceled checks, it was determined that a check issued to a supplier in payment of accounts payable of \$625 had been recorded as a disbursement of \$367.
g. The August 31 balance in the general ledger Cash account, before reconciliation, is \$9,356.

Required:
Prepare the adjusting journal entry that should be prepared to reflect the reconciling items.

Part a.

No entry

Part b.

Debit  : Deposits in Transit \$1,247

Credit : Bank Reconciliation Statement \$1,247

Increase the Bank Statement Balance

Part c.

Debit  : Bank Reconciliation Statement \$1,247

Credit : Out Standing Checks \$1,870

Decrease theBank Statement Balance

Part d.

Debit  : Cash \$115

Interest credited in Bank Statement not recorded

Part e.

Debit  : Bank Charges \$37

Credit : Cash \$37

Recording of Bank Charges in the Books

Part f.

Debit  : Accounts Payable \$258

Credit : Cash \$258

Payment to Supplier understated by \$258

Part d.

No entry

Explanation:

Corrections and Adjustments may be either to correct the Cash Book or the Bank Statement Balance as above.

Consumption spending is:__________ A. spending by households, businesses, and government on all goods used up within one year. B. spending by individuals and households on both durable and nondurable goods. C. spending on goods and services by heads of households. D. spending by individuals and households on only nondurable goods, since they are used up quickly.