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Suppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account.a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $22; (ii) $20; (iii) $18

Sagot :

abiolataiwo2015

Answer:

i) -13.33%

ii)0.00%

iii)13.33%

Explanation:

Calculation for the rate of return after one year

i). Rate of return=(1000*($20-$22))/$15000

Rate of return=(1000*-$2))/$15000

Rate of return=-$2,000/$15000

Rate of return= -13.33%

(ii)Rate of return= (1000*($20-$20))/$15000

Rate of return=(1000*$0)/$15000

Rate of return=$0/$15000

Rate of return= 0.00%

(iii)Rate of return= (1000*($20-$18))/$15000

Rate of return=(1000*$2))/$15000

Rate of return=$2,000/$15000

Rate of return= 13.33%

Therefore what will be your rate of return after one year if Xtel stock is selling at:

(i) $22 will be -13.33%

ii) $20 will be 0.00%

iii) $18 will be 13.33%

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