An investor sells short 500 shares of ABC Corporation on June 1, at a time when...

An investor sells short 500 shares of ABC Corporation on June 1, at a time when the price per share is $120. The position is closed out 3 months later, August 31, when the price per share is $100. A dividend of $4 per share was paid July 31, one month before the short position is closed out.

Suppose that the investor must open a margin account at the time the short position is taken. The margin required is 50% of the value of the stock sold short. The investor also earn 1% per month, compounded monthly, on the margin account. Find the investor's 3-month rate of return on the investment.

answer: 29.63%

Expert Solution

jeff jeffy answered 1 year ago

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