Suppose you have $10,000 in cash to invest.You decide to sell short $5,000 worth of Kinston stock and invest the proceeds from your short sale,plus your $10,000 into one-year U.S.treasury bills earning 5%.At the end of the year,you decide to liquidate your portfolio.Kinston Industries has the following realized returns: The return on your portfolio is closest to:

Question

Suppose you have $10,000 in cash to invest.You decide to sell short $5,000 worth of Kinston stock and invest the proceeds from your short sale,plus your $10,000 into one-year U.S.treasury bills earning 5%.At the end of the year,you decide to liquidate your portfolio.Kinston Industries has the following realized returns:  The return on your portfolio is closest to:

Quizplus · Accepted Answer

C) You short sold $5000/$25 = 200 shares of Kinston and invested the $5,000 + $10,000 in T-notes. In one year you will have (15,000)(1.05) = $15,750 - 200 × ($29 + $1) = $9,750.
So, your total return is equal to 11ea7e60_15ae_5c70_ba34_99ff004131a9_TB1624_11 = -0.025 or -2.5%

Suppose You Have $10,000 in Cash to Invest