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looking for the answer for part d) B1 A speculator thinks that a particular share that is now selling at $210 is likely to decrease
looking for the answer for part d)
B1 A speculator thinks that a particular share that is now selling at $210 is likely to decrease in price to $207 in five days. The speculator does not own the share. (a) Represent on a time line the whole strategy she could initiate at once using covered short-selling. [Each transaction should show the order and the delivery. To avoid overcrowding the time line, represent the order and the trade as one operation that you call order.] (5 marks) (b) Assume she manages to sell at $210 and the price of the share five days later is actually $205. Calculate the profit the strategy in (a) generates [Show your working). Interpret your answer. (3 marks) (c) Describe under which circumstances the strategy above would be illegal. (1 mark) (d) Discuss what would be the challenge(s) of this strategy if the lender of the security recalls the security 2 days after the sale order. (1 mark)Step by Step Solution
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