Question

Fill in the blanks and show your works

John Q. Investor takes a short position on 1,000 shares of Apple (AAPL), selling at $218.94 per share on May 21. Dividends are estimated at $28 per year paid quarterly, and the last Ex-date was April 25. JQ's broker charges him $100 for the loan of the shares every six months.

JQ covers his position on November 17 at $260.08 At the time of the initial sell JQ's broker must deposit to JQ's margin account a total of $__________ and JQ's initial investment is $ _________.

JQ's profit on this position is $ ________

The holding period rate of return is ________% and the rate of return on the underlying asset is ________%

Answer 1

Answer:

1) $328,410

2) $109,470

3) -$48,240

4) -44.1%

5) 21.99 %

Explanation:

1) The deposit at the initial stage is: 1.5*1000*$218.94 = $328,410

2) The initial investment is equivalent to: 0.5*1000*218.94 = $109,470

3) The profit will be equal to: 1000*(218.94 - 28/4 - 260.08) = 1000*(218.94 - 7 - 260.08) = -48140 - 100 = -48240

4) The return rate holding period is equivalent to: profit/initial investment = -48240/109470 = -0.441 or -44.1%

5) The underlying asset return rate is: (260.08 +7 - 218.94)/218.94 = 48.14/218.94 = 0.2199 or 21.99%