Use the table for the question(s)below.
Consider the following covariances between securities:
-Suppose you have $10,000 in cash to invest.You decide to sell short $5000 worth of Kinston stock and invest the proceeds from your short sale,plus your $10,000 into one-year U.S.treasury bills earning 5%.At the end of the year,you decide to liquidate your portfolio.Kinston Industries has the following realized returns:
The return on your portfolio is closest to:
A)-0.5%
B)13.5%
C)-2.5%
D)14.5%

Question

Use the table for the question(s)below.
Consider the following covariances between securities: 
-Suppose you have $10,000 in cash to invest.You decide to sell short $5000 worth of Kinston stock and invest the proceeds from your short sale,plus your $10,000 into one-year U.S.treasury bills earning 5%.At the end of the year,you decide to liquidate your portfolio.Kinston Industries has the following realized returns: 
The return on your portfolio is closest to:
A)-0.5% 
B)13.5% 
C)-2.5% 
D)14.5%

Quizplus · Accepted Answer

C)You short sold $5000/$25 = 200 shares of Kinston and invested the $5000 + $10,000 in T-notes.In one year you will have (15,000)(1.05)= $15,750 - 200 × ($29 + $1)= $9750.
So,your total return is equal to 11ea7cce_3d23_931a_928c_d9143a547df1_TB1626_00 = -0.025 or -2.5%

Use the Table for the Question(s)below