Problem 2-25 Calculating Short Sale Returns (LO4, CFA5) You just sold short 700 shares of wetscope,...

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Answer 1

Answer #1

ANSWER = Rate of return = 22.59%

Proceeds from short sale = 700($81) = $56,700

Initial margin deposit = $56,700(.50) = $28,350

Total assets = Total liabilities and equity = $56,700 + 28,350 = $85,050

Cost of covering short = 700($71.50) = $50,050

Account equity = $85,050 – 50,050 = $35,000

Cost of covering dividends = 700($0.35) = $245

Dollar profit = $35,000 – 28,350 – 245 = $6,405

Rate of return = $6,405 / $28,350 = 22.59%

Answer 2

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