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62

An investor shorts 100 shares when the share price is $50 and closes out the position six months later when the share price is $43. The shares pay a dividend of $3 per share during the six months. How much does the investor gain?

A. $1,000

B. $400

C. $700

D. $300

A. $1,000

B. $400

C. $700

D. $300

Answer: B

The investor gains $7 per share because he or she sells at $50 and buys at $43. However, the investor has to pay the $3 per share dividend. The net profit is therefore 7−3 or $4 per share. 100 shares are involved. The total gain is therefore $400.

The investor gains $7 per share because he or she sells at $50 and buys at $43. However, the investor has to pay the $3 per share dividend. The net profit is therefore 7−3 or $4 per share. 100 shares are involved. The total gain is therefore $400.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015