Question
Suppose a stock is trading at a price of $15 in year 0. I year 1 it pays a dividend of $1 and the price
Suppose a stock is trading at a price of $15 in year 0. I year 1 it pays a dividend of $1 and the price (ex dividend) has increased to $16. In year 2, it also pays a dividend of $1, and the price has gone down to $13. In year 0, you short 100 shares which you buy back in year 2, and you trade on a margin where you are required to hold 150 percent of the value of your short position ( you should assume the initial margin and the maintenance margin are both 150 percent of the value of the short position) in a margin account paying zero interest. What is the return on your short position?
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