Question
URGENT! Thank you in advance! Q. You sell short shares of Microsoft that are currently selling at $100 per share. You post $4,500 according the
URGENT! Thank you in advance!
Q. You sell short shares of Microsoft that are currently selling at $100 per share. You post $4,500 according the 50% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 6 months if Microsoft is selling at $120? (Ignore any dividends.)
A. The market value = 4500. The number of shares of Microsoft is 4500/100 = 45 shares. You won 45*(120-100) = 900. So your return is 900/4500 = 20%.
B. We first calculate the market value = 4500/50%=9000. The number of shares of Microsoft is 9000/100 = 90 shares. You lost 90*(120-100) = 1800. So your return is -1800/4500 = -40%.
C. We first calculate the market value = 4500/50%=9000. The number of shares of Microsoft is 9000/100 = 90 shares. You won 90*(120-100) = 1800. So your return is -800/4500 = 40%.
D. The market value = 4500. The number of shares of Microsoft is 4500/100 = 45 shares. You lost 45*(120-100) = 900. So your return is -900/4500 = -20%.
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