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1) Assume you want to short-sell= 100 shares of MNO stock, that has a bid price of= $49.22 and an ask price of $49.87. You cover short position 270 days later when bid price is= $46.87 and ask price is $47.50. Assume that there is= 0.4% commission to engage in short sale and 0.3% commission to close short-sale. Assume lender keeps whole proceeds from short sale as collateral.

a) What profit did you generate?

b) Assume 9-month interest rate is= 6%, and that rebate for MNO stock offered by lender is 2%. How much interest accrues during nine months in which you have short position? Does this decrease or rise your profit?

2) Suppose typical index fund or ETF charges management fee of= 0.10% per year and has low turnover resulting in trading costs of another= 0.05% per year. Suppose that the actively managed stock mutual fund charges the management fee of= 1.0% and has much higher turnover resulting in trading costs of the extra 0.5% per year.

Actively managed fund has the possibility to outperform market while index fund will deliver return of market (less management and trading costs). Determine excess return per year should the actively managed fund earn to overcome higher fees?

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  • Category:- Basic Finance
  • Reference No.:- M915138

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