9. You are buiishonTelecom s t Thear ent market p ce s Oper share, a you have S4

Question

9. You are buiishonTelecom s t Thear ent market p ce s Oper share, a you have S4000 o your owntom est You bomow an addtional S4000from yor broker at an ne estreo 45% per year and invest $8,000 in the stock 2What wil beyou a eotrenm r hep ceofTelecoms supby6% d ngthe next year? I ore te expeded d de d Round your answer to 2 decimal places. Rate of return bHow tar does te rceofTelecom s ock ha etotaitoryotogetama n call ifthe manterance magns30%? Assume tepre tal happens mmedate Round your answerto2decimal places) tock price alis below

Explanation / Answer

a) Own Investment in stock = $4000

No. of shares purchased = $8000 / $40 = 200 shares

Interest to be paid = $4000 x 4.5% = $180

Return on stock = ($40 x 6%) x 200 = $480

Rate of return = (Return on stock - Interest paid) / Own investment = ($480 - $180) / $4000 = 0.075 or 7.50%

b) Maintenance Margin = Own investment / Total value of shares

or, 0.30 = (Total Value - amount borrowed ) / Total value

or, 0.30 = ( 200 x share price - $4000) / (200 x share price)

or, 0.30 x (200 x share price) = (200 x share price - $4000)

or, 60 x share price = 200 x share price - $4000

or, 140 x share price = $4000

or, share price = $28.57

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