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18 December, 19:14

On January 1, you sold short four round lots (that is, 400 shares) of Four Sisters stock at $63 per share. On March 1, a dividend of $1.50 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $58 per share. You paid 50 cents per share in commissions for each transaction. What is the value of your account on April 1?

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Answers (2)
  1. 18 December, 20:03
    0
    Value of the account = - $900

    Explanation:

    Accumulated profits from the short sale = Number of shares x Price per share

    = 300 x $50 = $15,000

    Commissions that are paid during the short sale = Commission per share x Number of shares

    = 0.5 x 300 = $150

    The Net proceeds from the short sale = Proceeds - Commissions

    = 15000 - 150 = $14,850

    Total dividend paid = Number of shares x Dividend per share

    = 300 x 3 = $900

    Money paid in covering the short sale = Number of shares x Price

    = 300 x $49 = $14,700

    Commissions paid in covering the short sale = Commission per share x Number of shares

    = 0.5 x 300 = $150

    Total money paid in covering the short sale

    = 14700 + 150 = $14,850

    Therefore, Value of the account = Proceeds - Dividend paid - Money paid

    = $14,850 - $900 - $14,850 = - $900

    Value of the account = - $900
  2. 18 December, 20:20
    0
    Value of the account on April 1 = $1000

    Explanation:

    Proceeds obtained from the short sale = Number of shares * Price per share = 400 * $63 = $25,200

    Commissions paid during the short sale = Commission per share * Number of shares

    = 0.5 * 400 = $200

    Net proceeds from the short sale = Proceeds - Commissions = 25,200 - 200 = $25,000

    Total dividend paid = Number of shares * Dividend per share = 400 * 1.5 = $600

    Money paid in covering the short sale = Number of shares * Price = 400 * $58 = $23,200

    Commissions paid in covering the short sale = Commission per share * Number of shares

    = 0.5 * 400 = $200

    Total money paid in covering the short sale = Money paid in covering the short sale + Commissions paid in covering the short sale

    Total money paid in covering the short sale = 23,200 + 200 = $23,400

    Value of the account = Net proceeds from the short sale - Dividend paid - Money paid

    = $25,000 - $600 - $23,400 = - $1000

    Value of the account = $1000
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Home » Business » On January 1, you sold short four round lots (that is, 400 shares) of Four Sisters stock at $63 per share. On March 1, a dividend of $1.50 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $58 per share.
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