Question

In: Finance

1. Stock Transactions You have decided to purchase 1,000 shares of Caterpillar and short 600 shares...

1. Stock Transactions You have decided to purchase 1,000 shares of Caterpillar and short 600 shares of Home Depot. Complete these transactions on Stock-Trak.

2. Stock Transactions The next day, you decide that you want only 600 shares of Caterpillar and want to short 200 more shares of Home Depot. Complete the necessary transactions.

3. Stock Transactions You have now decided to close your long position in Caterpillar and close out your short position in Home Depot. Complete the necessary transactions. What is your total dollar gain or loss on these transactions?

(Please show the steps and use any dollar amount)

Expert Solution

Stock	Day1			Day2			Day3
Stock	Buy	Sell	Shares Held	Buy	Sell	Shares held	Buy	Sell	Shares Held
Caterpillar	1000		1000		400	600		600	0
Home Depot		600	600		200	800	800		0

Day1

Let Price of Caterpillar = $100

Price of Home Depot = $150

Buying Value of Caterpillar = $100*1000 = $100000

Selling Value of Home Depot = $150*600 = $90000

Day2

Let Price of Caterpillar = $120

Price of Home Depot = $130

Selling Value of Caterpillar = $120*400 = $48000

Profit = $(120-100)*400 = $8000

Net Buying Value of Caterpillar = $100000-$48000 = $52000

Selling Value of Home Depot = $130*200 = $26000

Net Selling Value of Home Depot = $26000+$90000 = $116000

Day3

Let Price of Caterpillar = $110

Price of Home Depot = $140

Selling Value of Caterpillar = $110*600 = $66000

Net Profit for of Caterpillar = $66000-$52000 = $14000

Buying Value of Home Depot = $140*800 = $112000

Net Profit for of Home Depot = $116000-$112000 = $4000

jeff jeffy answered 3 months ago

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