Question

YOU SOLD SHORT APPLE 200 SHARES OF APPLE STOCK FOR $250 YOUR MARGIN IS 70%, IF INTEREST IS 5% YEARLY AND DIVIDEND IS 5 DOLLARS . MAINTENANCE MARGIN IS 35%

CALCULATE THE RETURN IF APPLE STOCK PRICE SURGED TO 300 DOLLAR

DO NOT USE %

NUMBER OF TWO DECIMALS ONLY IN THIS FORM

.00

Answer 1

In short selling, the short seller doesn't own the stock and borrows it from the broker in hope that stock price will fall in the future. in future, the short seller buys the stock from market and return it to the broker.

rate of return = (short sale price - dividends paid - stock purchase price)/initial margin

initial margin = (no. of shares sold short*selling price per share)*initial margin rate = (200*$250)*70% = $50,000*70% = $35,000

rate of return = (200*$250 - 200*$5 - 200*$300)/$35,000 = (50,000 - $1,000 - $60,000)/$35,000 = -$11,000/$35,000 = -0.3143 or -31.43