Question

Suppose you short-sell 300 shares of XYZ stock at $30.19 with a commission charge of 0.5%. Supposing you pay commission charges for purchasing the security to cover the short-sale, how much profit have you made if you close the short-sale at a price of $29.87?

Answer 1

Answer:

$5.91

Explanation:

Data provided in the question:

Number of shares sold = 300

Selling price = $30.19

Commission charge = 0.5% = 0.005

Purchasing price = $29.87

Now,

Total selling price = 300 × $30.19

= $9057

Proceeds from selling =Total selling price - Commission

= $9057 - [0.005 × $9057 ]

= $9,011.715

Now

Purchasing price of the shares = 300  × $29.87 = $8,961

Total amount paid for purchasing

= Purchasing price of the shares + Commission

=  $8,961 + [0.005 × $8,961 ]

=  $8,961 + $44.805

= $9,005.805

Hence,

Profit = Proceeds from selling - Total amount paid for purchasing

= $9,011.715 - $9,005.805

= $5.91