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B4. The price of a share of an Australian REIT ETF (Real Estate Investment Trust) is currently $20 per share. You believe that the Australian
B4. The price of a share of an Australian REIT ETF (Real Estate Investment Trust) is currently $20 per share. You believe that the Australian Real Estate Market is at its peak and prices are likely going to fall due to an ever longer pandemic stemming from the new omicron variant and rising interest rates. Suppose, that short selling shares in this REIT ETF is cheap and easy, and you decide to short 1000 shares of the ETF. There is a 60% initial margin and a 35% maintenance margin. Your broker charges you AUD$5.00 or 0.10% (10 basis points), whichever is greater, on the purchases, sales, short sales, and coving shorts. Assume there are no other costs or taxes. The price falls to $18 per share and at this price you close out your short position (you cover the short). What is your rate of return on this investment? [5 marks]
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