Suppose you desire to short-sell 400 shares of JKI stock, which has a bid price of
$25.12 and an ask price of $25.31. You cover the short position 180 days later when the bid price is $22.87 and the ask price is $23.06.
a. Taking into account only the bid and ask prices (ignoring commissions and interest), what profit did you earn?
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). How do these commissions change the profit in the previous answer?
c. Suppose the 6-month interest rate is 3% and that you are paid nothing on the short-sale proceeds. How much interest do you lose during the 6 months in which you have the short position?

  • CreatedAugust 12, 2015
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