Chapter 3 EOC Assignment 15. Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per share. She borrows $4,000 from her broker to help pay for the purchase. The...

Answer the questions in the attached file


Chapter 3 EOC Assignment 15. Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per share. She borrows $4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8%. (LO 3-4) a. What is the margin in Dée's account when she first purchases the stock? b. If the share price falls to $30 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 margin call? c. What is the rate of return on her investment? 21. Here is some price information on Fincorp stock. Suppose first that Fincorp trades in a dealer market. (LO 3-2) a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed? b. Suppose you have submitted an order to sell at market. At what price will your trade be executed? c. Suppose you have submitted a limit order to sell at $55.62. What will happen? d. Suppose you have submitted a limit order to buy at $55.37. What will happen? 24. 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%. (LO 3-4) a. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (i) $44; (ii) $40; (iii) $36? What is the relationship between your percentage return and the percentage change in the price of XTel? b. If the maintenance margin is 25%, how low can XTel's price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $10,000 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $15,000 of your own money) if XTel is selling after one year at (i) $44; (ii) $40; (iii) $36? What is the relationship between your percentage return and the percentage change in the price of XTel? Assume that XTel pays no dividends. e. Continue to assume that a year has passed. How low can XTel's price fall before you get a margin call? 25. Suppose that you sell short 500 shares of XTel, currently selling for $40 per share, and give your broker $15,000 to establish your margin account. (LO 3-4) 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) $44; (ii) $40; (iii) $36? 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.