Question

On January 1, you sold short one round lot (that is, 100 shares) of Snow’s stock at \(21 per share. On March 1, a dividend of \)3 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. What is the value of your account on April 1?

Short answer

The value of stock = $ 300

Step-by-step solution

Definition

The commission is the system of payment based on a specified percentage or share on the value/profit of the sale.

 Step 2: Calculation of value of accounts on April 1

The proceeds from the short sale (net of commission):

Net Proceeds = ((market price x Total number of shares) – Commission)

= ($21 x 100) – $50

= $2,050

The proceeds from the buying (net of commission):

Net Proceeds = ((market price x Total number of shares) – Commission)

= ($15 x 100) – $50

= $1,450

A dividend payment of $300 was withdrawn from the account.

Therefore, the value of your account is equal to the net proceeds of short sale – net proceeds from buying - Dividends:

$2050 – $300 – $1450 = $300

So the value of stock = $ 300