3. Stock transactions: Short selling Suppose Domesca's stock is currently trading at $60 per share,...
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3. Stock transactions: Short selling Suppose Domesca's stock is currently trading at $60 per share, but Lorenzo analyzed the company's financial reports and believes that the stock is overpriced. In response to this, he calls his broker to take a short position on 200 shares of Domesca's stock. The sale of the stock resulted in proceeds of $ for Lorenzo. Over the next three months, the price of Domesca's stock decreased, and Lorenzo placed an order through his brokerage to purchase 200 shares to offset his short position. If the price decreased to $50, then Lorenzo paid $ for the shares. If Domesca pays a quarterly dividend of $1 per share and the transaction cost charged by the broker is 1 percent of the proceeds on each transaction, Lorenzo stands to earn from his short position. Grade It Now Save & Continue Continue without saving
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