Question
You decide to sell 100 shares of Mason Enterprises short when it is selling at its yearly high of 42.25. Your broker tells you that
You decide to sell 100 shares of Mason Enterprises short when it is selling at its yearly high of 42.25. Your broker tells you that your margin requirement is 60 percent and that the commission on the sale is 20 and a 6% interest rate on margin debt. While you are short, Mason Enterprises pays a 0.85 per share dividend. a. If at the end of one year you buy your Mason Enterprises shares to cover your short sale at 35 and are charged a commission of 25, what is your rate of return on the investment? b. If at the end of one year you buy your Mason Enterprises shares to cover your short sale at 80 and are charged a commission of 20, what is your rate of return on the investment? c. At what price would you receive a margin call from the broker if the maintenance margin is 30%?
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