Question: Passé Traders opened an account to short-sell 1,000 shares of Internet Dreams at $130 per share. The initial margin requirement was 50%. A year later, the price of Internet Dreams has risen from $130 to $140, and the stock has paid a dividend of $2 per share
a. Compute the rate of return on the investment if the margin account pays no interest.
b. Compute the rate of return on the investment if the margin account charges a 6% interest rate per year and Passé Traders borrows 50% of the value of the 1,000 shares short-sold.