Question

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.)A. 10%B. 20%C. 6.67%D. 15%

Answer 1

Answer:

correct option is B. 20%

Explanation:

given data

sell = 300 shares

currently selling = $30 per share

margin = 50%

solution

we get here rate of return after = 1 year when after 1 year selling = $27 is express as

rate of return = ( currently selling - after 1 year selling ) ÷ margin × currently selling    ..................1

put here value we get

rate of return = $\frac{30-27}{30*0.50}$ × 100

solve it we get

rate of return = 0.20× 100

rate of return = 20%

so correct option is B. 20%