Question

13.3You borrow 100 shares of ABC stock from your broker and sell them at $25/share (plus a $100 commission). Two weeks later, the stock price drops to $20/share. You buy 100 shares to return to the stockbroker and pay a $100 commission. What is your Return on Investment (calculate to the nearest single decimal point)? %

Answer 1

16.0%

Step-by-step explanation:

Amount of share borrowed = 100shares

If it was sold at $25/share, 100 shares will be sold at $25×100 = $2,500 ($100 commission included).

If the price drop to $20/share after 2weeks, the price of 100 shares will be $20×100 which $2,000 for 100 shares.

If $100 commission was paid the total amount of share to be returned will be $2,000+$100(commission)

= $2,100

ROI = Amount borrowed - amount after stock price drops

ROI = $2,500 - $2,100

ROI = $400

%ROI = $400/$2500×100

%ROI = 16.0%