Problem 4-07

After an analysis of Lion/Bear, Inc., Karl OGrady has concluded that the firm will face financial difficulty within a year. The stock is currently selling for $15 and OGrady wants to sell it short. His broker is willing to execute the transaction but only if OGrady puts up cash as collateral equal to the amount of the short sale. If OGrady does sell the stock short, what is the percentage return he loses if the price of the stock rises to $18? Use a minus sign to enter the amount as a negative value. Round your answer to the nearest whole number.

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What would be the percentage return if the firm went bankrupt and folded? Round your answer to the nearest whole number.

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