Question

Assume you sell short 100 shares of common stock at $18 per share, with initial margin at 54%. What would be your rate of return if you repurchase the stock at $35 per share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.

Answer in percentages, for example if the answer is 43.51%, answer 43.51, and remember to use a dot as a decimal separator

Clarification: The rate of return that we seek in this question is the return on equity. Also, the initial margin is here defined as a percentage of the total short position. If you for example short sell for a total amount of $10,000 and the margin is 80 %, you would add $8,000 as a margin.

In order to find the return on equity you need to establish how much equity you have in the beginning of the investment.

Answer 1

What would be your rate of return if you repurchase the stock at $35 per share?
=(100*(18-35))/(100*18*54%)
=-174.89712%