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An investor sells 100 shares short at $43. The sale requires a margin deposit equal to 60 percent of the proceeds of the sale. If the investor closes the position at $49, what was the percentage earned or lost on the investment? If the position had been closed when the price of the stock was $27, what would have been the percent earned or lost on the position? (ignore any dividends, interest or commissions that would normally apply in a short sale)

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abiolataiwo2015

Answer:

What would have been the percent earned or lost on the position is 23.2%

Explanation:

Proceeds of the sale $43 X 100 = $4,300 Margin requirement: .6 x $4,300 = $2,580

When the price of the stock rises to $49, the investor loses $600 ($4,300 - $4,900). ThereforeThe percentage lost on the invested funds is ($600)/$2,580 = (23.2%).

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