You open a margin account at Chas Pigeon, a discount broker. You subsequently short Exciting.com at $286, believing it to be overpriced. This transaction is done on margin, which has an annual interest rate cost of 9 percent. Exactly one year later Exciting has declined to $54 a share, at which point you cover your short position. You pay brokerage costs of $20 on each transaction you make.
a. The margin requirement is 50 percent. Calculate your dollar gain or loss on this position, taking into account both the margin interest and the transaction cost to sell.
b. Calculate the percentage return on your investment (the amount of money you put up initially, counting the brokerage costs to buy).

Answer rating: 100% (QA)

a The stock reached 286 The stock was bought after 1 year at 54 Margin 50 of 286 143 Annual interest ... View the full answer