An investor sells 250 shares short at $28. The sale requires a margin deposit equal to 55 percent of the proceeds of the sale.
Value of the contract = 250 * 28 = 7000
Loan Amount = Contract Value * (1- Inital Margin)
= 7000 * (1-0.55)
= 3150
Investment = Contract Value - Loan
= 7000 - 3150
= 3850
Part a)
Short sale 28
Closed (Buy Back) @ 37
Loss = (37 - 28) * 250 = 2,250
% Loss = Loss / Money Invested
= 2250 / 3850
= 58.44%
Part b)
Short sale 28
Closed (Buy Back) @ 22
Profit = (28 - 22) * 250 = 1500
% Profit = Profit / Money Invested
= 1500 / 3850
= 38.96%
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