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26 April, 20:44

You sell short 300 shares of Microsoft that are currently selling at $30 per share. You post the 50% 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 $27? (Ignore any dividends.)

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  1. 26 April, 21:59
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    20%

    Explanation:

    Data provided

    Currently selling per share = $30

    Cost of Microsoft after selling = $27

    Margin percentage = 50%

    The calculation of rate of return is shown below:-

    Rate of return = (Currently selling per share - Cost of Microsoft after selling) : Margin percentage * 100

    = ($30 - $27) : 50% * 30

    = $3 : 15

    = 0.20

    or

    20%

    Therefore for calculating the rate of return we simply applied the above formula.
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