Question
Akira has decided that the stock of Gentle Bidders is overvalued at $7 a share and short sales cannot be executed on margin, so Shavir
Akira has decided that the stock of Gentle Bidders is overvalued at $7 a share and short sales cannot be executed on margin, so Shavir must put up the entire value of the stock when it is sold short.
(a). What is the percentage loss if the price of the stock rises to $13? (b). What is the percentage gain if the company goes bankrupt and is dissolved? (c). What are the maximum percentage gain the short seller can earn and the largest percentage loss the short seller can sustain? (d). From the short sellers perspective, what are the best and worst case scenarios?
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