USE THE FOLLOWING INFORMATION FOR THE PROBLEM (1) You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year. (1) Suppose at the end of one year XCorp is selling at $90 per share and you cover your short position at this price. What is your rate of return on the investment?(Assume a 1.25% commission on the purchase) -40.64% -25.53% 21% 7% –71.2%
(can you explain how did they solve this: (show full solution and formula)
USE THE FOLLOWING INFORMATION FOR THE PROBLEM (1)
You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year.
(1) Suppose at the end of one year XCorp is selling at $90 per share and you cover your short position at this price. What is your rate of
- -40.64%
- -25.53%
- 21%
- 7%
- –71.2%
Ans: Rate of return = [75-90-0.9375-1.125-1.75-
(1-.65)(75)(.0525)]/[(.65)(75)+0.9375] =-40.64%
Option a
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