you decide to sell short 100 shares of charlotte horse farms when it is selling
ID: 2663291 • Letter: Y
Question
you decide to sell short 100 shares of charlotte horse farms when it is selling at its yearly high of $56 .your broker tells you that your margin requirement is 45 percent an the commission on the purchase is $155 . while you are short the stock, charlotte pays a $2.50 per share dividend. At the end of one year, you buy 100 shares of charlotte at $45 to close out your position and are charged a commission of $145 and 8 % interest on the money borrowed. What is your rate of return on the investment?Explanation / Answer
BEGIBIBG VALUE=56 X100 =5600
INITIAL INVESTMENT =MARGINAL REQUIREMENT +COMMISION
= .45 X5600 + 155= 2675
ENDING VALUE= 45 X 100=4500
DIIVIDEND =2.50 X100= 250
TRANSZCTIONS COSTS=155 +145 =300
INTEREST =0.8 X (.55 X 5600)= 246 .40
PROFIT =5600 -4500-250-246.40= 303.60
RATE OF RETURN ON YOUR INVESTMENT =303.6/ 2675=11.35%
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