Answered step by step
Verified Expert Solution
Question
1 Approved Answer
5. Complete the example for calculating realized returns with short-selling from our meeting. Use both portfolio method and accounting method to verify that they
5. Complete the example for calculating realized returns with short-selling from our meeting. Use both portfolio method and accounting method to verify that they produce the same results. Be sure to break down interest earned from various sources. Suppose you have $100,000 and ABC is trading at $20/share. One-year later, ABC pays $2 in dividends and is worth $22/share. Assume deposit rate of 5%. a) Suppose you sell-short 5,000 shares of ABC, and deposit the rest. b) Suppose you sell-short 2,500 shares of ABC, and deposit the rest. c) How would the method be affected if the borrowing rate was higher at 6% but the deposit rate remains unchanged?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started