You sell short 300 shares of Microsoft that are currently selling at $50 per share

Accounting Nov 16, 2020

You sell short 300 shares of Microsoft that are currently selling at $50 per share. You post the 40% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Microsoft is selling at $47? (ignore any dividends.) Multiple Choice 11.25% O 7.50% 15.00 26 25%

Expert Solution

The correct answer is "15.00%" calculated as below:

Rate of return = ((Difference between initial share price and current share price) / Margin required)*100

Rate of return = (($50 - $47)/($50*40%))*100

Rate of return = ($3/$20)*100

Rate of return = 15%

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