Question

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 : $

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Dividend payment = DPS * Shares Outstanding = $3.30 * 100 = $330 was withdrawn from the account.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