You just sold short 653 shares of XYZ, Inc., a fledgling software firm, at $95.44 per share. You cover your short one year later when the share price is $4.50 below the price at which you shorted the shares. If the company paid $1.37 per share in dividends over this period, what is your rate of return (in percent) on the investment? Assume an initial margin of 58 percent. Answer to two decimals.
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Proceeds from short sale = 653 x $95.44 = $62,322.32
Cost of covering short sale = 653 x ($95.44-$4.50) =
$59,383.82
Cost of covering dividends = 653 x $1.37 = $894.61
Dollar profit = $62322.32 - $59383.82- $894.61 = $2043.89
Rate of return = $2043.89 / $62322.32*0.58 = 5.65%
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