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on january 1, you sold short two round lots (i.e., 200 shares) of four sisters stock at $23 per share. on march 1, a dividend of $3.00 per share was paid. on april 1, you covered the short sale by buying the stock at a price of $20 per share. you paid 50 cents per share in commissions for each transaction. what is the value of your account on april 1?



Answer :

The value of the account on April 1 is -$200

Proceeds obtained from the short sale:

Number of shares * Price per share = 200 * $23 = $4,600

Commissions paid during the short sale:

The commission per share * Number of shares: 0.5 * 200 = $100

Net proceeds from the short sale:

Proceeds – Commissions = 4,600 – 100 = $4,500

Total dividend paid:

Number of shares * Dividend per share: 200 * 3 = $600

Money paid in covering the short sale:

Number of shares * Price: 200 * $20 = $4,000

Commissions paid in covering the short sale:

The commission per share * Number of shares

0.5 * 200 = $100

Total money paid in covering the short sale:

Money paid in covering the short sale  + Commissions paid in covering the short sale

Total money paid in covering the short sale: 4,000 + 100 = $4,100

Value of the account = Net proceeds from the short sale – Dividend paid – Money paid

$4,500 - $600 - $4,100 = -$200

Value of the account = -$200

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