On January 1, you sold short one round lot (that is, 100 shares) of Lowe\'s stoc
ID: 2769217 • 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. a. What is the proceeds from the short sale (net of commission)? Proceeds from the short sale $ b. What is the dividend payment? Dividend payment $ c. 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? Total cost including commission $ d. What is the value of your account on April 1? Value of account $
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