Essentials Of Investments
11th Edition
ISBN: 9781260316193
Author: Bodie
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
thumb_up100%
Chapter 3, Problem 18PS
You are bullish on Telecom stock. The current market price is $50 per share, and you have $5,000 of your own to invest. You borrow ail additional $5,000 from your broker at interest rate of 8% per year and invest $10.000 in the stock. (LO 3-4)
a. What will be your
b. How far does the price of Telecom stock have to full for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You are bullish on Telecom stock. The current market price is $80 per share, and you have $12,000 of your own to invest. You borrow an additional $12,000 from your broker at an interest rate of 6% per year and invest $24,000 in the stock.
a. What will be your rate of return if the price of Telecom stock goes up by 15% during the next year? The stock currently pays no dividends. (Negative value should be indicated by a minus sign. Round your answer to the nearest whole number.)
b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately. (Round your answer to 2 decimal places.)
You are bullish on IT stock. The current market price is OMR70 per share, and you have OMR8,000 of your own to invest. You borrow an additional OMR7,000 from your broker at an interest rate of 7% per year and invest OMR15,000 in the stock.
What will be your rate of return if the price of Telecom stock goes up by 15% during the next year? The stock currently pays no dividends.
How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.
Kim opens a brokerage account and purchases 500 shares of Batliboy at OMR50 per share. She borrows OMR5,000 from her broker to help pay for the purchase. The interest rate on the loan is 7%
What is the margin in Kim's account when she first purchases the stock
If the share price falls to OMR40 per share by the end of the year, what is the remaining margin in her account? If the maintenance margin requirement is 30%, will she receive a…
You are bullish on Telecom stock. The current market price is $110 per share, and you have $22,000 of your own to invest. You borrow an additional $22,000 from your broker at an interest rate of 6.6% per year and invest $44,000 in the stock.
a. What will be your rate of return if the price of Telecom stock goes up by 8% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.)
b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediate ly. (Round your answer to 2 decimal places.)
Chapter 3 Solutions
Essentials Of Investments
Ch. 3.8 - Suppose you by 100 shares of stock initially...Ch. 3.8 - Repeat Question 1 assuming your initial margin was...Ch. 3.9 - Suppose you sell short 100 shares of stock...Ch. 3.9 - Repeat Question t (b) but now assume that the...Ch. 3 - Prob. 1PSCh. 3 - What are some different components of the...Ch. 3 - Prob. 3PSCh. 3 - Prob. 4PSCh. 3 - In what cirecumstances are private placements more...Ch. 3 - Prob. 6PS
Ch. 3 - Prob. 8PSCh. 3 - How do margin trades magnify both the upside...Ch. 3 - A market order has: (LO 3-2) a. Price uncertainty...Ch. 3 - Where would an illiquid security in a developing...Ch. 3 - Are the following statements true or false? If...Ch. 3 - Prob. 13PSCh. 3 - Prob. 14PSCh. 3 - Prob. 15PSCh. 3 - Old Economy Traders opened an account to...Ch. 3 - Prob. 17PSCh. 3 - You are bullish on Telecom stock. The current...Ch. 3 - Prob. 19PSCh. 3 - Prob. 20PSCh. 3 - Prob. 21PSCh. 3 - Prob. 22PSCh. 3 - Prob. 23PSCh. 3 - Prob. 24CCh. 3 - Prob. 25CCh. 3 - Are all of the brokerage firms suitable ii you...Ch. 3 - Choose two of the firms listed. Assume that you...Ch. 3 - Prob. 4WM
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- You are bullish on IT stock. The current market price is OMR70 per share, and you have OMR8,000 of your own to invest. You borrow an additional OMR7,000 from your broker at an interest rate of 7% per year and invest OMR15,000 in the stock. What will be your rate of return if the price of Telecom stock goes up by 15% during the next year? The stock currently pays no dividends. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.arrow_forwardYou are bullish on Telecom stock. The current market price is $62 per share, and you have $6,200 of your own to invest. You borrow an additional $6,200 from your broker at an interest rate of 7.6% per year and invest $12,400 in the stock. a. What will be your rate of return if the price of Telecom stock goes up by 9% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.) Rate of return % b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30% ? Assume the price fall happens immediately. (Round your answer to 2 decimal places.) Stock price falls below.arrow_forwardYou are bullish on GCB stock. The current market price is GHS5.00 per share, and you have GHS5,000 of your own to invest. You borrow an additional GHS5,000 from your broker at an interest rate of 12% per year and invest the GHS10,000 in the stock. a.What will be your rate of return if the price of GCB stock goes up by 20% during the next year? b.How far does the stock of GCB stock have to fall for you to get a margin call if the maintenance margin is 30%.arrow_forward
- You are bullish on Telecom stock. The current market price is $250 per share, and you have $22,000 of your own to invest. You borrow an additional $22,000 from your broker at an interest rate of 6% per year and invest $44,000 in the stock. Required: What will be your rate of return if the price of Telecom stock goes up by 16% during the next year? The stock currently pays no dividends.arrow_forwardYou are bullish on XYZ stock. The current market price is $100 per share, and you have $10,000 of your own to invest. You borrow an additional $10,000 from your broker at an interest rate of 8% per year and invest $20,000 in the stock. WHAT IS THE margin call if the maintenance margin is 30%? Assume the price IS $115 one year LATER.arrow_forwardYou consider buying a share of stock at a price of $950. The stock is expected to pay a dividend of $10 next year, and your advisory service tells you that you can expect to sell the stock in 1 year only for $945. What is the expected rate of return?arrow_forward
- Suppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account. a. 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: $22, $20, and $18? Assume that Xtel's pays no dividends. b. If the maintenance margin is 25%, how high can Xtel's price rise before you get a margin call? c. Redo parts a and b but now assume that Xtel has paid a year end dividend of $1 per share. The pruces in part a should be interpreted as ex-dividend, that is prices after the dividend has been paid.arrow_forwardSuppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account.a. 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: (i) $22; (ii) $20; (iii) $18? Assume that Xtel pays no dividends.b. If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call?c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.arrow_forwardSuppose you buy OMR2000 worth of stock on margin. The initial margin is 60% and the maintenance margin is 30%. a. How much have you borrowed? What is your equity? b. Suppose the value of the stock rises by 15% to OMR2300. What is the return on your investment? c. Suppose the value of the stock falls by 15% to OMR1700. What is the return on your investment? d. Does buying a stock on margin increase or decrease your risk of investment? Use the results in parts b and c to answer the question.arrow_forward
- .Suppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account. a.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: (i) $22; (ii) $20; (iii) $18? Assume that Xtel pays no dividends. b.If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call? c.Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.13.arrow_forwardSuppose that you sell short 500 shares of Intel, currently selling for $40 per share. Your initial percentage margin is 60%. Assume you earn no interest on the funds in your margin account and Intel has paid no dividends. a. What will be your rate of return after one year if Intel stock is selling at $40? b. If the maintenance margin is 30%, how high can Intel's price rise before you get a margin call?arrow_forwardYou are bullish on Unum stock. The current market price is $50 per share, and you have $4,000 of your own to invest. You borrow an additional $4,000 from your broker at an interest rate of 8.5% per year and invest the $8,000 in the stock. What will be your rate of return on the stock if it goes up by 9.36% during the next year? Group of answer choices 7.64% 10.22% 10.53% 13.57% 12.29%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY