Aikon Technology stock is trading at 30$ per share. You are speculating that it

Question

Aikon Technology stock is trading at 30$ per share. You are speculating that it will go down in value over the next few weeks. You decide to conduct a short-sale transaction on Aikon Technology stock for 500 shares.

a) What is your profit from this transaction if the stock rises to $33 per share?

b) What is your profit from this transaction if the stock falls to $28 per share?

c) what is the profit from the transaction if Aikon pays a dividend of $1 per share while you have shorted the Aiken stock?

d) What is your profit from this transaction if Aikon pays a dividend of $1 per share while you have shorted the Aiken stock?

Explanation / Answer

We sold 500 shares at $30 per share.

a). Profit/(Loss)=500(30-33)=($1500)

b). Profit/(Loss)=500(30-28)=$1000

c). In case of shorting the stock, we borrow the stock to be sold. So, any dividend that the company pays during that time has to be paid to the lender.

Profit/(Loss)=500(-1)=($500)

d). Same as c.

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