P2.20 Calculate the profit or loss per share realized on each of the following short-sale transactions

P2.21 Charlene Hickman expected the price of Bio International shares to drop in the near future in response to the expected failure of its new drug to pass FDA tests. As a result, she sold short 200 shares of Bio International at $27.50. How much would Charlene earn or lose on this transaction if she repurchased the 200 shares four months later at each of the following prices per share?

a. $24.75

b. $25.13

c. $31.25

d. $27.00

P2.14 Marlene Bellamy purchased 300 shares of Writeline Communications stock at $55 per share using the prevailing minimum initial margin requirement of 50%. She held the stock for exactly four months and sold it without brokerage costs at the end of that period. During the 4-month holding period, the stock paid $1.50 per share in cash dividends. Marlene was charged 9% annual interest on the margin loan. The minimum maintenance margin was 25%.

a.Calculate the initial value of the transaction, the debit balance, and the equity position on Marlene's transaction.

Securities' price= $55*300shares= $16,500

Equity= $16,500*.5= $8,250

Debt= .5*$1,650= 8,250

b.For each of the following share prices, calculate the actual margin percentage, and indicate whether Marlene's margin account would have excess equity, would be restricted, or would be subject to a margin call.

1.$45; account is restricted

New securities price=$45*300shares=$13,500; Margin= (13,500-8,250)/13,500= 38.89%

2.$70; account has excess margin

$70*300shares= $21,000; Margin= (21,000-8,250)/$21,000= 60.71%

3.$35; account is subject to a margin call

$35*300= 10,500; (10,500-8,250)/10,500= 21.43%

c.Calculate the dollar amount of (1) dividends received and (2) interest paid on the margin loan during the 4-month holding period.

Dividends= $1.50*300shares= $450 quarterly; interest= .09*8,250= 742.50 yr.; 742.50/3= 247.50 3mo. period.

d.Using each of the following sale prices at the end of the 4-month holding period to calculate Marlene's annualized rate of return on the Writeline Communications stock transaction.

1.$50

2.$60

3.$70