velue 10.00 points On January 1, you sold short one round lot (that is., 100 sha
ID: 2817800 • Letter: V
Question
velue 10.00 points On January 1, you sold short one round lot (that is., 100 shares) of Lowe's stock at $24.50 per share. On March 1, a dividend of $3.20 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $20.00 per share You paid 15 cents per share in commissions for each transaction. a. What is the proceeds from the short sale (net of commission)? Proceeds from the short sale b. What is the dividend payment? Dividend payment e. What is the total cost, including commission, if you have to cover the short sale by buying the stock at a price of $20.00 per share? Total cost including commission d. What is the net gain from your transaction? Net gainExplanation / Answer
a) Net proceeds from the short sale is USD 24.50 (sales price) - 0.15 (commission) x 100 shares i.e. USD 2435.
b) Dividend payment is equal to dividend per share x number of shares. That is USD 3.20 x 100 = USD 320
c) Net gain from transaction will be (sales price - commission) - (purchase price - commission) x number of shares - total dividend paid i.e. (USD 24.50 - 0.15 cents) - (USD 20 - 0.15 cents) x 100 - USD 320 = USD 130.
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