Exhibit 4.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

You sell 100 shares short of AMF Corporation when it is selling at $45 per share. Your margin requirement is 60% and the commission on the sale is $50 and the broker charges 10% annual interest. AMF Corporation paid a $0.50 per share dividend while you were short the stock. After one year you cover your short sale at $35 per share with a $50 commission for the purchase.
-Refer to Exhibit 4.8.What is your annual rate of return on this investment?
A) 18%
B) 24%
C) 25%
D) 36%
E) 37%

Question

Exhibit 4.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

You sell 100 shares short of AMF Corporation when it is selling at $45 per share. Your margin requirement is 60% and the commission on the sale is $50 and the broker charges 10% annual interest. AMF Corporation paid a $0.50 per share dividend while you were short the stock. After one year you cover your short sale at $35 per share with a $50 commission for the purchase.
-Refer to Exhibit 4.8.What is your annual rate of return on this investment?
A) 18%
B) 24%
C) 25%
D) 36%
E) 37%

Quizplus · Accepted Answer

Return = Profit/Initial Investment = $670/(.6*$4,500 + $50)= $670/$2750 = 0.244

Exhibit 4.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)