Question

An investor sells 100 shares short at $22. The sale requires a margin deposit equal to 60 percent of the proceeds of the sale. (8 points)

1. If the investor closes the position at $30, what was the percentage earned or lost on the investment?

1. If the position had been closed when the price of the stock was $17, what would have been the percent earned or lost on the position?

PLEASE SHOW WORK

Answer 1

Part A:

Amount Invested = No. of shares * Price * Margin%

= 100 * $ 22 * 60%

= $ 1320

Profit or Loss = [ Sale Price - Clso price ] * No. of Shares

= [ $ 22 - $ 30 ] * 100

= -$ 8 * 100

= -$ 800

% loss = Loss / Investment

= - 800 / 1320

= -0.6060 i.e -60.60%

Part B:

Amount Invested = No. of shares * Price * Margin%

= 100 * $ 22 * 60%

= $ 1320

Profit or Loss = [ Sale Price - Clso price ] * No. of Shares

= [ $ 22 - $ 17 ] * 100

= $ 5 * 100

= $ 500

% Profit = Loss / Investment

= 500 / 1320

= 0.3788 i.e 37.88%