(A)
Adequate information:
The current price in the market accounts for $50. The money available for investment is $5,000. The investor also borrowed money from the broker which amounts to $5,000 at a 8 % rate of interest.
To calculate:
The annual
Introduction:
Rate of return refers to the ratio of loss or profit ascertained in the financial year with respect to the investment which is generally expressed in percentage of decrease or increase in the investment's value during the given period of time.
(B)
To calculate:
The fall in the price of the telecom stock that enables the investor to get margin call.
Introduction:
Margin call comes into picture when the investor is required to deposit additional securities or money so that the margin in the investor's account stands equivalent to the minimum margin requirement.
Want to see the full answer?
Check out a sample textbook solution- 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 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.)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 belowarrow_forward
- 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 an additional $5,000 from your broker and invest $10,000 in the stock. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 35%? Assume the price fall happens immediately. Round your answer to two decimal places and enter the number without the dollar sign.arrow_forwardYou 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 an additional $5,000 from your broker and invest $10,000 in the stock. The maintenance margin is 30%.•How far does the price of Telecom stock have to fall for you to get a margin call?•If the price falls to $40 per share, will you receive a margin call?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_forward
- You 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_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_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_forward
- An investor is considering purchasing a share of stock. Earnings are expected to be $6 per share and the price next year is expected to be $100. Suppose risk-free interest rates fall and the required rate of return decreases from 7% to 6%. Nothing else changes. What is new price the investor is wiling to pay for the stock? Answer in dollars and do not enter a $ sign. Round to two decimal places. please explain step by steparrow_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 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_forward
- 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 LearningCorporate 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