You sell short 300 shares of Microsoft which are currently selling at $30 per share.You post the 50% margin required on the short sale.If you earn no interest on the funds in your margin account what will be your rate of return after one year if Microsoft is selling at $27? (Ignore any dividends)

Question

Quizplus · Accepted Answer

The initial investment is 50% of the total value of the short sale: 300 shares * $30/share * 50% = $4,500. The profit from the short sale is (30 - 27) * 300 = $900. The rate of return is $900 profit / $4,500 initial investment = 20%.

You Sell Short 300 Shares of Microsoft Which Are Currently