Question

On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $26.00 per share. On March 1, a dividend of $3.50 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $17.00 per share. You paid 15 cents per share in commissions for each transaction.a. What is the proceeds from the short sale (net of commission)?b.What is the dividend payment?

c.What is the total cost, including commission, if you have to cover the short sale by buying the stock at a price of $17.00 per share?
d.What is the value of your account on April 1?

Answer 1

Step-by-step explanation:

Number of shares=100

Current market price(selling price)=$26.00

Dividend paid=$3.50 per share

Covered short sale(Buying price)=$17.00

commission =15cents($0.15 per share)

SOLUTION(a)PROCEED FROM SHORT SELL (NET COMMISSION)

Proceeds from short sale=number of shares×(market selling price per share - commission per share)

=100×($26.00 - $0.15)

=100×($25.85)

=($2,585)

therefore the proceeds from short sell net commission is $2,585

Solution (b) Dividend paid

Proceeds from short sale= Number of shares × dividend per share

=100×($3.50)

=$350

Therefore,the dividend paid is $350

Solution (c) Total cost including commission to cover short sale

Proceeds from short sale=Number of shares ×(market buying price per share + commission per share)

=100 ×($17.00 +$0.15)

=100 × ($17.15)

=$1,715

Therefore,the total cost including commission is $1,715

Solution (d) Value of the account

Value of the account=Proceeds from short sale - Dividend paid- Total cost

=$2,585 -$350 - $1,715

=$520

Therefore,the value of the account after covered short sale is $520.