Question

1.

a. A man buys $1,000 worth of stock with $500 of his own money and $500 borrowed from his broker at 6% annual interest. The stock increases in value, and the man decides to sell it after 60 days for $1,500. The broker’s commission to buy and sell is $200. What is the man's total profit? ($430 , $500 , $775 , or $295)

b. A man borrows 100 shares of a stock from his broker and sells them at $28/share (the man also pays a $100 commission). Two weeks later, the stock price drops to $15/share. The man buys 100 shares to return to the stockbroker and pays a $100 commission. What is the man's profit from selling short? ($500 , $1,000 , $1,100 , or $2,700)

Answer 1

Solution 1:- Assume 360 days in a year

a. To Calculate Man's total Profit-

Interest on Borrowed Amount =

Interest on Borrowed Amount = $5

Total Profit = Sales Value - Stock Worth - Interest - Commission

Total Profit = $1,500 - $1,000 - $5 - $200

Total Profit = $295

The Correct Answer is point D i.e. $295.

B. To Calculate Man's Profit From Selling Short-

Profit = Sales Value - Purchase Value - Commission

Profit = 100 shares * $28 - 100 shares * $15 - ($100+$100)

Profit = $2,800 - $1,500 - $200

Profit = $1,100.

The Correct Answer is point C i.e. $1,100.

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