Chapter 3: Extra Margin and Short Position Questions 1 ...

(Note: interest and dividends are listed as “payable” liabilities. Once those are paid, the amount of cash decreases so the equity does not change.) Equity Return = $26,250/$25,000 – 1 = 5.00% The price dropped 10% and the investor was levered 2 to 1, but the cost of the short (including paying dividends out) decreased the profit to 5.00%. ................
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