You just sold short 700 shares of Wetscope, Inc., a fledgling software firm, at

Question

You just sold short 700 shares of Wetscope, Inc., a fledgling software firm, at $81 per share. You cover your short when the price hits $71.50 per share one year later. If the company paid $.35 per share in dividends over this period, what is your rate of return on the investment? Assume an initial margin of 50 percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal points.)

You just sold short 700 shares of Wetscope, Inc., a fledgling software firm, at $81 per share. You cover your short when the price hits $71.50 per share one year later. If the company paid $.35 per share in dividends over this period, what is your rate of return on the investment? Assume an initial margin of 50 percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal points.)

Explanation / Answer

Initial Investment = 700*81*50% = $ 28,350

Dividend Payment = 0.35*700

Dividend Payment = 245

Net Income = No of Share*(sell price - purchase price) - dividend payment

Net Income = 700*(81-71.50) - 245

Net Income = $ 6405

Rate of Return = Net Income/Initial Investment

Rate of Return = 6405/28350

Rate of Return = 22.59%

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