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Tina sells short 1,200 shares of Alpha Inc. that are currently selling at $54 per share....

Tina sells short 1,200 shares of Alpha Inc. that are currently selling at $54 per share. She posts the 50% margin required on the short sale. Her broker requires a 30% maintenance margin. The firm pays no dividends. Tina earns no interest on the funds in her margin account. What is the rate of return on the investment if the price of Alpha stock changes from $54 to $47?

A.

25.93%
B.

12.96%
C.

27.66%
D.

-12.96%

Solutions

Expert Solution

Value of position = 1,200(54) = $64,800

Margin Put = 0.50(64,800) = $32,400

Return earned = 1,200(54 - 47)/32,400

Return earned = 25.93%

jeff jeffy answered 2 years ago
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