Question
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
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?
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