Question

In: Finance

On January 1, you sold short 100 shares of XYZ stock at $20 using a 50%...

On January 1, you sold short 100 shares of XYZ stock at $20 using a 50% initial margin. The interest rate on the margin account is 10% annually. On April 1 (in three-months), you covered the short sales by buying stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. Assume you received interest on all your assets, i.e. the sum of the short sale proceeds and the margin.
1. What is the value of your assets and equity on April 1?
2. What is the total rate of return on equity?

Solutions

Expert Solution

He has 50% margin on 100 shares 20$ each, means 50% of 2000 i.e; 1000

He sold short 100 shares at 20$ means got credit of 2000

So total balance in his account is 3000...

His interest income at 10% pa for 3 months on 3000 would be 75$

Value of his asset=

a) Initial capital = $1000

b) His profit :

Sale of 100 shares @$20 = $2000

Purchase of shares @$15 = $150

Less: Total Commission = $100

= $400

c) Interest Income = $75

Total = $1000+$400+$75

= $1475

2) Return on equity

His totoa earning is $475 on the investment of 1000 in 3 months

So, the ROE will be

=$475*4

=$1900 on investment of 1000

So ROE = 190%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

On January 1, you sold short 100 shares of XYZ stock at $20 using a 50%...
On January 1, you sold short 100 shares of XYZ stock at $20 using a 50% initial margin. The interest rate on the margin account is 10% annually. On April 1 (in three-months), you covered the short sales by buying stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. Assume you received interest on all your assets, i.e. the sum of the short sale proceeds and the margin. 1. What...
On January 1, you sold short 100 shares of XYZ stock at $20 using a 50%...
On January 1, you sold short 100 shares of XYZ stock at $20 using a 50% initial margin. The interest rate on the margin account is 10% annually. On April 1 (in three-months), you covered the short sales by buying stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. Assume you received interest on all your assets, i.e. the sum of the short sale proceeds and the margin. 1. What...
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock...
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $22.50 per share. On March 1, a dividend of $1.40 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $17.50 per share. You paid 55 cents per share in commissions for each transaction. a. What is the proceeds from the short sale (net of commission)? b. What is the dividend payment? c....
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock...
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $27.70 per share. On March 1, a dividend of $3.30 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $22.00 per share. You paid 25 cents per share in commissions for each transaction. a. What is the proceeds from the short sale (net of commission)? b. What is the dividend payment? c....
1. Assume you sold short 100 shares of common stock at $50 per share. The initial...
1. Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60? 2. Assume you sell short 100 shares of common stock at $45 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $40/share? The stock paid no dividends during the period, and you...
An investor sells short 100 shares of XYZ stock at $62 and sells 1 XYZ Oct...
An investor sells short 100 shares of XYZ stock at $62 and sells 1 XYZ Oct 60 put @$6. The maximum potential gain is: (Show your work).
Part 1: On January 1, you sold short one round lot (that is, 100 shares) of...
Part 1: On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $29.00 per share. On March 1, a dividend of $2.10 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $24.50 per share. You paid 50 cents per share in commissions for each transaction. a. What is the proceeds from the short sale (net of commission)? b. What is the dividend...
1. a. On January 2, you sold short 1,000 shares of ABC stock at $25 per...
1. a. On January 2, you sold short 1,000 shares of ABC stock at $25 per share. On March 2, a dividend of $1 per share was paid. On April 2, covered the short sale by buying the stock at a price of $23 per share. You paid $20 in commissions for the roundtrip ($10 to short, $10 to cover). Assuming you have no other positions, what is the value of your account on April 2? Present your answer rounded...
Question 4 The stock of ABC Inc is trading at $50. You short sold 350 shares...
Question 4 The stock of ABC Inc is trading at $50. You short sold 350 shares of ABC at this price. However, price increased to $55, at which point you decided to close the trade. What was your percentage return? The initial margin rate is 75%. Question 5 Consider the short sale trade in the previous question. If your brokerage requires a maintenance margin of 40%, at what price will you get a margin call? The initial margin rate is...
On January 1, you sold short six round lots (i.e., 600 shares) of Four Sister's stock...
On January 1, you sold short six round lots (i.e., 600 shares) of Four Sister's stock at $41 per share. On March 1, a dividend of $2.50 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $40 per share. You paid 50 cents per share in commissions for each transaction. What is the value of your account on April 1st?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT