Question

On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $27.70 per share. On March 1, a dividend of $3.30 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $22.00 per share. You paid 25 cents per share in commissions for each transaction.
a. What is the proceeds from the short sale (net of commission)?
b. What is the dividend payment?
c. What is the value of your account on April 1?

Answer 1

Explanation:

The calculation is shown below:

a. The proceeds from the short sale (net of commission) is

= Number of shares short sold x (price of short sale - commission paid per share)

= 100 shares x ($27.70 - 0.25)

= $2,745

b. The dividend payment is

= Number of shares × dividend per share

= 100 shares × $3.30

= $330

c. Value of an account is

= Proceeds from short sale, commission net -  dividend paid - cost including commission

where,

Cost including commission is

= Number of shares short sold x (price of buying stock + commission paid per share)

= 100 shares × ($22 + 0.25)

= $2,225

So, the value of an account is

= $2,745 - $330 - $2,225

= $190