Answer:
The rate of return will be of 20%
Explanation:
These are the follwong steps to calculate the rate of return:
First you need to calculate the inflow of funds from short selling of Microsoft shares
The number of shares by the information reunited is 300
The selling price of each share is $ 30 per share.
Total sale proceeds is 300 shares×$ 30 per share =$9000
Secondly you need to calculate the margin requirement
Margin requirement on short sale 50 %
Total sale proceeds on short sale×50%=$ 4500
Next year we will again buy each share at $ 27
Total outflow of funds will be $ 27*300 shares = $ 8100
With the information calculated above, we are ready then to calculate the net equity after one year
Net equity will be= (9000+4500-8100)= $5400
Finally, we are ready to calculate the Rate of return
If the net equity will be of $5400, the margin amount deposited is $ 4500, and net gain is $900, rate of return is as follows:
Rate of return= (900/4500)×100= 20%
