Question

On January 1, you sold short three round lots (that is, 300 shares) of Four Sisters stock at $50 per share. On March 1, a dividend of $3.00 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $49 per share. You paid 50 cents per share in commissions for each transaction.

What is the value of your account on April 1? (Negative amount should be indicated by a minus sign.)

Answer 1

-$900

Step-by-step explanation:

The computation of value of account on April 1 is given below:-

Proceeds from short sale = $50 × 300 per share

= $15,000

Commission = $0.50 × 300

= $150

Proceeds = $15,000 - $150

= $14,850

Now, Dividend payment = 300 × $3

= $900

So, Total cost

Buy Back = $49 × 300

= $14,700

Commission = $0.50 × 300

= $150

Total cost = $14,700 + $150

= $14,850

Therefore,

Value of account = Proceeds - Dividend payment - Total cost of buy back

= $14,850 - $900 - $14,850

= -$900