You feel very strongly that the stock in McDonald's Corporation is about to fall from its present level of $85 per
share. You call your broker and have him sell 5,000 shares short. This costs you $525 in commissions.
- By law, what is the minimum amount of cash you have to have in your bank account before your broker will do the trade?
As anticipated, McDonald's stock drops to a low $45 per share. You call your broker and have him repurchase the 5,000 borrowed shares. This costs you $525 in commissions.
2.. If during the time time you sold this stock short, McDonald's stock paid a dividend of $3.50 per share, calculate your total rate of return for this investment. Assume that the cash you originally had in your account was the minimum required by law.
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