2 parts A. Choose a stock from NYSE or NASDAQ. Assume you have shorted 1000 shar

Question

2 parts

A. Choose a stock from NYSE or NASDAQ. Assume you have shorted 1000 shares of that stock six month ago. Assume you cover your short during this coming week when you post (Your Holding period = 6 months). Estimate your profits and loss. (You need to find out from yahoo.com your stocks price six month ago)

B. Choose another publicly traded company. Assume you had bought 1000 share of that stock on the close of the market six months ago. Assume at the time of purchase you borrowed 50 percent of total investment from your broker (buying on margin). Assume you sell your 1000 shares during this coming week (Your Holding period = 6 months. Assuming your broker call money rate is 8% per year, what is your holding period return in percent? What is your annualized return in percent? (Hint: you need to find out from yahoo.com your stock

Explanation / Answer

a. APP Closing price on Sep 10,2014 = 0.92
closing price on Mar 10,2014 = 0.74

Thus, we shorted 1000 shares at 0.74 6 months back and the price at yesterdays closing was 0.92

Thus profit = 1000*(0.74 - 0.92) = -180
i.e a loss of $180

b. NJ closing price on Sep 10,2014 = 16.41
NJ closing price on Mar 10, 2014 = 15.27 (adjusted for stock split)

Amount invested on Mar 10 = 1000 * 15.27 = $15,270

Half of this i.e $7,635 was borrowed at 8% per annum

Total return from stock = 1000*(16.41-15.27) = $1,140
Interest costs = 7635 * 8/100 * 6/12 = 305.4

Net return = 1140 - 305.4 = $834.6

Invested capital = 7635 (not counting the margin amount)
holding period return = 834.6/7635 * 100 = 10.93%

Annualized return = (1+10.93%)^2 - 1 = 0.23057 or 23.06%

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