BU111 Spring 2012 - Supplementary Questions

At the time of sale on october 1st the market price

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Unformatted text preview: . At the time of sale on October 1st, the market price of RIM is $22 per share. On July 1st of the next year, you cover your short position when shares are trading for $10 each. a) b) c) d) Calculate the proceeds from the short sale and sale commission. How much will you have to additionally deposit in the short account? What is your capital gain and yield? Explain the concept of leverage, and how it relates to selling short. Problem 4 Calculate the capital gain/loss for each scenario below: Stock Number of Shares Price, Mar 1st Price, Oct 1st a) HAR 500 $4 $4 b) RON 3,400 $50 $55 c) HRM 1,550 $24 $19 1 The investor must always have at least 150% of the current market value of the stock in their short account. 100% of this comes from the proceeds of the short sale (which are deposited directly into the short account at the time of sale) and the other 50% is deposited out of investor’s pocket at the time of sale. The investor will receive a short call if the amount of money in the short account is less than 150% of the current market value of the stock....
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