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14 December, 16:02

On January 1, you sold short one round lot (that is, 100 shares) of Four Sisters stock at $21 per share. On March 1, a dividend of $2 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction.

Required:

a. What is the value of your account on April 1?

a. What is the proceeds from the short sale (net of commission) ?

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Answers (1)
  1. 14 December, 16:31
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    a) The value of account on April 1 is $300

    b) The proceeds from the short sale (net of commission) is $2050

    Explanation:

    a) On January 1, The proceeds from the short sale (net of commission) = ($21 per share * 100 shares) - ($50/100 per share commission * 100 shares) = $2100 - $50 = $2050

    On March 1, Dividends paid = 100 shares x $2 per share = $200

    On April 1, Covering the short sale at $15 per share costs (including commission) = ($15 per share * 100 shares) + ($50/100 per share commission * 100 shares) = $1500 + $50 = $1550

    The value of account on April 1 = net profit on the transaction = $2,050 - $200 - $1,550 = $300

    The value of account on April 1 is $300

    b) a) On January 1, The proceeds from the short sale (net of commission) = ($21 per share * 100 shares) - ($50/100 per share commission * 100 shares) = $2100 - $50 = $2050

    The proceeds from the short sale (net of commission) is $2050
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