On Sept. 10, the market value of ABC company stock was $70 per share. By conducting an analysis of ABC company, you think that the price should be much lower. You called your broker and placed an order to see 100 shares of ABC stock. Because you did not have shares of ABC stock, this transaction is a short sale.

a. Assume that ABC company does not pay dividends (so you do not have to cover dividend payments for the stock that your brokerage firm borrowed and sold for you). Over the next two months, the price of ABC stock declined.

b. Assume that on Nov 10, the market price of ABC stock was $60, and you choose to execute the short sale, How much do you earn from this short sale (excluding transaction costs)?

 

Answer rating: 100% (QA)

Step 11 You earn a profit from the short sale of ABC stock by selling borrowed sh... View the full answer