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 percent. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25 percent per year.
-Refer to Exhibit 3.6. 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 percent. What is your rate of return on the investment?
A) -55.92 percent
B) 10.31 percent
C) 51.06 percent
D) 23.1 percent
E) -33.05 percent

Question

Quizplus · Accepted Answer

The rate of return on the investment is calculated by considering the initial and final values of the investment, including costs such as commissions, dividends paid, and interest on margin debt. Given the information, the correct calculation leads to a rate of return of 51.06 percent.