On January 1, you sold short one round lot (that is, 100 shares) of Four Sisters stock at $21 per share. On March 1, a dividend of $2 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction.

Required:

a. What is the value of your account on April 1?

a. What is the proceeds from the short sale (net of commission) ?

a) The value of account on April 1 is $300

b) The proceeds from the short sale (net of commission) is $2050

Explanation:

a) On January 1, The proceeds from the short sale (net of commission) = ($21 per share * 100 shares) - ($50/100 per share commission * 100 shares) = $2100 - $50 = $2050

On March 1, Dividends paid = 100 shares x $2 per share = $200

On April 1, Covering the short sale at $15 per share costs (including commission) = ($15 per share * 100 shares) + ($50/100 per share commission * 100 shares) = $1500 + $50 = $1550

The value of account on April 1 = net profit on the transaction = $2,050 - $200 - $1,550 = $300

The value of account on April 1 is $300

b) a) On January 1, The proceeds from the short sale (net of commission) = ($21 per share * 100 shares) - ($50/100 per share commission * 100 shares) = $2100 - $50 = $2050

The proceeds from the short sale (net of commission) is $2050