Exhibit 4.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year.
-Refer to Exhibit 4.6.At the end of one year you close out your short position by purchasing share of XCorp at $45 per share.The commission is 1.25%.What is your rate of return on the investment?
A) -55.92%
B) 10.31%
C) 51.06%
D) 23.1%
E) -33.05%

Question

Exhibit 4.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year.
-Refer to Exhibit 4.6.At the end of one year you close out your short position by purchasing share of XCorp at $45 per share.The commission is 1.25%.What is your rate of return on the investment?
A) -55.92%
B) 10.31%
C) 51.06%
D) 23.1%
E) -33.05%

Quizplus · Accepted Answer

Rate of return =
[75 - 45 - 0.9375 - 0.5625 - 1.75 - (1 - .65)(75)(.0525)]/[(.65)(75)+ 0.9375] = 51.06%

Exhibit 4.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)