Question

On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock...

On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $27.70 per share. On March 1, a dividend of $3.30 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $22.00 per share and returned your borrowed shares. You paid 25 cents per share in commissions for each transaction. What is the value of your account on April 1 after returning borrowed shares?  (Round your answer to 2 decimal places.)

Value of account : $

Homework Answers

Answer #1

Proceeds from the short sale (net of commission) = [Selling Price * Shares Outstanding] - [Commission per share * Shares Outstanding]

= ($27.70 * 100) - ($0.25 * 100) = $2,770 - $25 = $2,745


Dividend payment = DPS * Shares Outstanding = $3.30 * 100 = $330 was withdrawn from the account.

Covering the short sale at $22 per share cost you (including commission):

= [Purchase Price * Shares Outstanding] - [Commission per share * Shares Outstanding]

= ($22.00 * 100) - ($0.25 * 100) = $2,200 - $25 = $2,175

Therefore, the value of your account is equal to the net profit on the transaction:

= $2,745 - $330 - $2,175 = $240

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