Suppose a share is trading for $25 in the current period. You borrow the current market value of 100 shares, i.e., $2500 from a broker. You will need to repay 100 shares to the broker after the last trading period.
A) You will make a profit of $2000 if the market price is $16 per share by the last trading period.
B) You will make a profit of $900 if the market price drops to $16 per share by the last trading period.
C) You will make a loss of $900 if the market price is $16 per share by the last trading period.
D) You will make a loss of $1000 if the market price stays at $25 till the last trading period.

Question

Quizplus · Accepted Answer

If the market price drops to $16, you can buy 100 shares for $1600 to repay the broker. Since you initially borrowed $2500, your profit is $2500 - $1600 = $900.

Suppose a Share Is Trading for $25 in the Current