Amazon will drive many retailers into bankruptcy

Assignment Help Financial Management

Reference no: EM131844042

A hedge fund manager has a negative view of retail stocks right now based on the belief that Amazon will drive many retailers into bankruptcy. To act on his view, the manager sells short 20,000 shares of Target Corp (TGT). The manager finds a broker willing to lend the shares. The current market price is 59.00 and TGT pays quarterly dividends of $0.62 per share. Assume the next dividend takes place 3 months from today, and subsequent dividends follow the same pattern.

a. Assume the manager maintains the short sale for 6 months. List all transactions involved in the short-sale, holding the position, and closing it out after 6 months.

b. What is the profit (loss) on the short sale if the market price of TGT is $40.00 when the manager closes the position after 6 months? Assume there is no fee to borrow the stock.

c. What is the profit (loss) on the short sale if the market price of TGT is $68.00 when the manager closes the position after 6 months? Assume there is no fee to borrow the stock.

d. Now assume the investor pays approximately $1.70 per share over the 6 months to borrow the stock. This is an approximation based on a 5% borrow fee on $68 for 0.5 years. Re-compute your answers to b. and c. incorporating that fee.

Reference no: EM131844042

Questions Cloud

Assessment of the worth of wal-mart stock : As of Feb. 2010 what is your assessment of the worth of Wal-Mart’s stock?

Amazon shareholders to amazon earnings announcement : Use Capital Markets Research (CMR) to explain the reaction of Amazon’s shareholders to Amazon’s earnings announcement.

Run the account down to zero : How many years will it take to exhaust his funds, i.e., run the account down to zero?

How many shares of buff can the investor purchase : Assume the investor utilizes their maximum margin potential. How many shares of BUFF can the investor purchase?

Amazon will drive many retailers into bankruptcy : A hedge fund manager has a negative view of retail stocks right now based on the belief that Amazon will drive many retailers into bankruptcy.

Possible objectives for general purpose financial reporting : There are several possible objectives for general purpose financial reporting.

What is the present value of the investment : Your organization has been asked to invest in a continuing care retirement center. What is the present value of the investment? What is the profitability index?

Assume a constant price-earnings ratio : Eaton, Inc., wishes to expand its facilities. The company currently has 5 million shares outstanding and no debt. Assume a constant price-earnings ratio.

Subscription to investing wisely weekly is about to expire : Your subscription to Investing Wisely Weekly is about to expire. You plan to subscribe to the magazine for the rest of your life,

User Account

All Pages