Question

1.Assume that you sell short 350 shares of a stock when the market price is 32.10–32.15. Your broker demands a 20% haircut for collateral and pays a short rebate of 3%. You borrow all needed cash for the transaction above the short proceeds at an interest rate of 4.8%. One year later, the price is 29.50– 29.55, and you close the position. What is the net profit (in $)? 


Answer 1

No. of Sahre short sell	350 Share	32.10-32.15
Value of Short sell		11235
( 350*32.10)
20% Haircur demanded by Broker (I)		2247
(11235*20%)
Rebate from Broker(ii)		337.05
( 11235*3%)
Total fund need to be paid to broker (i-ii)		1909.95
Interest on Borrowed fund @ 4.8%		91.6776
(1909.95*4.8%)
Market Price after 1 year		29.50-29.55
Value of Buy the position		10342.5
(350*29.55)
Computation of Net Gain
Detail		Amount
Value of short sale of the share		11235
Value of Buy the position	Less	10342.5
Interest charges	Less	91.6776
Net Gain		800.8224