Problem 1: You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of 32 1/4. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $55. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at 28 3/8 and are charged a commission of $45 and a 9 percent interest rate. What is your dollar return on the investment?
Problem 2: What is your rate of return on the investment?