Rachel sells 100 shares short at $43. The sale requires a margin deposit equal to 60 percent of the proceeds of the sale. If the investor closes the position at $49, what was the percentage earned or lost on the investment? If the position had been closed when the price of the stock was $27, what would have been the percent earned or lost on the position?

Question

Lola Hartman

Business

5 November, 09:59

Rachel sells 100 shares short at $43. The sale requires a margin deposit equal to 60 percent of the proceeds of the sale. If the investor closes the position at $49, what was the percentage earned or lost on the investment? If the position had been closed when the price of the stock was $27, what would have been the percent earned or lost on the position?

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Answers (1)

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Hadassah Russell · Answer 1

23.25%; 62.01%

Explanation:

(a) Amount received:

= No. of shares * selling price

= 100 * $43

= $4,300

Sales deposit = 60% of Amount received

= 0.6 * $4,300

= $2,580

Amount paid = No. of shares * Purchase price

= 100 * $49

= $4,900

Therefore, Loss = $4,900 - $4,300

= $600

(b) If buys at $27, then

Amount paid = $27 * 100

= $2,700

Profit = $4,300 - $2,700

= $1,600

Loss on investment:

= ($600 : $2,580) * 100

= 23.25%

Profit on investment:

= ($1,600 : $2,580) * 100

= 62.01%