Question

1.Assume that you sell short 350 shares of a stock when the market price is 32.10–32.15....

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 $)? 


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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
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