On January 1, you sold short one round lot (that is, 100 shares) of Lowe\'s stoc
ID: 2718329 • Letter: O
Question
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $19.00 per share. On March 1, a dividend of $2.60 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $13.00 per share. You paid 20 cents per share in commissions for each transaction.
What is the total cost, including commission, if you have to cover the short sale by buying the stock at a price of $13.00 per share?
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $19.00 per share. On March 1, a dividend of $2.60 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $13.00 per share. You paid 20 cents per share in commissions for each transaction.
Explanation / Answer
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $19.00 per share. On March 1, a dividend of $2.60 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $13.00 per share. You paid 20 cents per share in commissions for each transaction.
(a) The proceeds from the short sale (net of commission) = (100 shares * $19 ) - ($0.20 * 100)
= $1,900 - $20 = $1,880
(b) Dividend payment = $2.60 per share * 100 shares = $260 total dividend
(c) The total cost, including commission, if you have to cover the short sale by buying the stock at a price of $13.00 per share is only the commissions for each transaction as coverage is at lower price.
So, Total cost = $0.20 * 2*100 = $ 40
(d) The value of your account on April 1 =[ ($19 - $13) * 100] - ($0.20 * 2 * 100) = $600 - $40 = $560