Question
the current bid-ask spread of stock ABC is $90-$90.50. the stock pays a dividend of $2 in 6 months from today and $3 in one
the current bid-ask spread of stock ABC is $90-$90.50. the stock pays a dividend of $2 in 6 months from today and $3 in one year from today. The risk free rate of interest is 5% compounded annually. the broker transactions is $20 per trade. a) determine the range of values for the short rebate rate. if the stock is in adequate supply for short sale, to which end of the range would the short rebate be the closest? b) you decide to sell short 10 shares of ABC. The short rebate rate is 5% and the lender requires that you post collateral equal to proceeds, plus a 10% haircut. calculate your total cash outlay a time 0. c) you are required to covert the short position you entered into in part b) 1 year later. calculate what the ask pice of the stock would need to be at that time in order for you to break even on the short sale.
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