Kendall sells a stock short for a price of 58. During the time Kendall has \"bor

Question

Kendall sells a stock short for a price of 58. During the time Kendall has "borrowed" the stock, the stop pays dividends of 2.4 and 4.1. Kendall is required to give collateral equal to 50% of the sale price (this is the margin). The margin earns an annual rate of interest of 3.1. In one year, Kendall purchases the stock for price X.

Jordan sells a stock short for a price of 111. During the time Jordan has "borrowed" the stock, the stop pays dividends of 4.5 and 4.  Jordan is required to give collateral equal to 50% of the sale price (this is the margin). The margin earns an annual rate of interest of 2.3. In one year, Jordan purchases the stock for price 2X.

Jordan's rate of return is 1.2 times Kendall's rate of return. Determine X.

Explanation / Answer

Jordan's rate of return is 1.2 times Kendall's rate of return

Kendall Dividends 6.5 =2.4+4.1 Stock price 58 Dividend yield 11.2% Interest yield on margin 1.6% =0.5*3.1% Capital gain =(x-58)/58 Net return 12.8% +((x-58)/58) Jordan Dividends 8.5 =4.5+4 Stock price 111 Dividend yield 7.7% Interest yield on margin 1.2% =0.5*2.3% Capital gain =(2x-111)/111 Net return 8.8% +(2x-111)/111

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