Excursus: Long/short-strategy Exercise 2 (Homework) You are responsible for the
ID: 2618400 • Letter: E
Question
Excursus: Long/short-strategy Exercise 2 (Homework) You are responsible for the implementation of the long/short-strategy. You decide to take a long position on Commerzbank AG (6,000,000) and a short position on Deutsche Bank AG (4,000,000). You buy 500,000 stocks of Commerzbank for 12 each and you receive a dividend of 0.5 per share. Furthermore, you do a short sale on Deutsche Bank and borrow 400,000 stocks (each is worth 9.50) and therefore a 0.50 premium is demanded (by the broker). The dividend of Deutsche Bank is 0.20. Assume that the share price of Commerzbank rises by 15% and the share price of Deutsche Bank rises by 10%. . Calculate the return from your long/short-strategy! Explain your result!Explanation / Answer
Amount paid for going long on Commerzbank AG = Euro 6 Million
You will receive by short sale on Deutsche Bank = Euro 3.8 Million
So total investment = Euro 2.2 Million
Gain from Commerzbank position = 1.8*500000 + .5*500000 = Euro 1.15 Million
Loss from Deutsche Bank = .95*400000 + .2*400000 + .5*400000 = Euro .66 Million
Return on long/short strategy = (1.15 - .66)/2.2 = 22.27%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.