Question

Charlene Hickman expected the price of Bio International shares to drop in the near future in response to the expected failure of its new drug to pass FDA tests. As a​ result, she sold short 100 shares of Bio International at ​$26.91. How much would Charlene earn or lose on this transaction if she repurchased the 100 shares four months later at each of the following prices per​ share?  

a.​$23.95

b.​$24.62

c.​$31.14

d. ​$26.63

a. The amount Charlene would earn or lose on this transaction if she repurchased the 100 shares four months late at $23.95 each is_​$

b. The amount Charlene would earn or lose on this transaction if she repurchased the 100 shares four months late at $24.62 each is_​$

c. The amount Charlene would earn or lose on this transaction if she repurchased the 100 shares four months late at $31.14 each is_​$

d. The amount Charlene would earn or lose on this transaction if she repurchased the 100 shares four months late at $26.63 each is_​$

Answer 1

Solution:

The selling price = ​$26.91

Quantity = 100

Part A )

When purchase price = ​$23.95

Profit per share = Selling price - purchase price = $26.91 -$23.95 = $2.96

Profit for 100 shares = 100 *2.96 = 296

The amount Charlene would earn on this transaction if she repurchased the 100 shares four months later at $23.95 each is $296

Part B )

When purchase price = ​$24.62

Profit per share = Selling price - purchase price = $26.91 -$24.62 = $2.29

Profit for 100 shares = 100 *2.29 = 229

The amount Charlene would earn on this transaction if she repurchased the 100 shares four months later at $24.62 each is $229

Part C )

When purchase price = ​$31.14

Profit per share = Selling price - purchase price = $26.91 -$31.14=-$4.23

Profit for 100 shares = 100 *-4.23 = -423

The amount Charlene would lose on this transaction if she repurchased the 100 shares four months later at $31.14 each is -$423

Part D )

When purchase price = ​$26.63

Profit per share = Selling price - purchase price = $26.91 -$26.63 = $0.28

Profit for 100 shares = 100 *0.28 = 28

The amount Charlene would earn on this transaction if she repurchased the 100 shares four months later at $26.63 each is $28