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Rate of Return on Short Sale of Stocks

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You decide to sell 240 shares of Topgun enterprises Inc short when it is selling at is yearly high of 64.60. your broker tells you that your margin requirement of 60 percent and that the commission on the sale is 5 percent of the total stock value. While you are short, Topgun pays a 2.20 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at 51.30 and are charged a commission of 4 percent of the total stock value. You are also charged a 7 percent interest rate on all borrowed funds. What is your profit and rate of return on the investment?

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The solution calculates rate of return on short sale of stocks.

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You decide to sell 240 shares of Topgun enterprises Inc short when it is selling at is yearly high of 64.60. your broker tells you that your margin requirement of 60 percent and that  the commission on the sale is 5 percent of the total stock value. While you are short, Topgun pays a 2.20 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at 51.30 and are charged a commission of 4 percent of the total stock value. You are also charged a 7 percent interest rate on all borrowed funds. What is your profit and rate of return on ...

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