Question

8. Jill has $100k. She sells short $50,000 of stock A, and then buys $75k in stock B and $75k in stock C. After a year, A appreciates by 10%, B by 40%, and C depreciates by 20%. What is the overall return on Jill’s portfolio during this year?

Answer 1

Sol :

Jill initial capital = $100,000

Short sell stock A = $50,000

Buys stock B = $75,000

Buys stock C = $75,000

Stock A appreciates by 10% = $50,000 x 10% = ($5,000) is a loss since its a short sell.

Stock B appreciates by 40% = $75,000 x 40% = $30,000 profit.

Stock C depreciates by 20% = $75,000 x 20% = ($15,000) loss.

Now over all profit/return = $30,000 - $15,000 - $5,000 = $10,000

Overall return on Jill portfolio = profit/return/Jill initial capital x 100

Overall return on Jill portfolio = $10,000/$100,000 x 100

Overall return on Jill portfolio = 10%

Therefore overall return on Jill portfolio is during the year is $10,000 or 10%.