You sell short 300 shares of Microsoft that 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 1 year if Microsoft is selling at $27? (Ignore any dividends.)

20%

Explanation:

Data provided

Currently selling per share = $30

Cost of Microsoft after selling = $27

Margin percentage = 50%

The calculation of rate of return is shown below:-

Rate of return = (Currently selling per share - Cost of Microsoft after selling) : Margin percentage * 100

= ($30 - $27) : 50% * 30

= $3 : 15

= 0.20

or

20%

Therefore for calculating the rate of return we simply applied the above formula.