Suppose you desire to short-sell 150 shares of ABC stock, which has a bid price of $ 39.75 and an ask price of $ 40 25. You cover the short position 180 days later when the bid price is $ 27.55 and the ask price is $ 28 05 a) Taking into account only the bid and ask prices (ignoring commissions and interest), what profit did you make $ b) Suppose that there is a 0.3% commission to engage in the short-sale (this is the commission to sell the stock and a 0.3% commission to close the short-sale (this is the commission to buy the stock back). Considering these commissions, what profit did you make $ c) Suppose the 6-month interest rate is 3% and that you are paid no interest on the short-sale proceeds. Still assuming that there is a 0.3% commission to engage in the short-sale, how much interest do you lose during the 6 months in which you have the short position $ Note: You can eam partial credit on this problem

Suppose you desire to short-sell 150 shares of ABC stock, which has a bid price of $ 39.75 and an ask price of $ 40 25. You cover the short position 180 days later when the bid price is $ 27.55 and the ask price is $ 28 05 a) Taking into account only the bid and ask prices (ignoring commissions and interest), what profit did you make $ b) Suppose that there is a 0.3% commission to engage in the short-sale (this is the commission to sell the stock and a 0.3% commission to close the short-sale (this is the commission to buy the stock back). Considering these commissions, what profit did you make $ c) Suppose the 6-month interest rate is 3% and that you are paid no interest on the short-sale proceeds. Still assuming that there is a 0.3% commission to engage in the short-sale, how much interest do you lose during the 6 months in which you have the short position $ Note: You can eam partial credit on this problem

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 4P

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