Answer-first summary for fast verification
Answer: $40,000
Compute the short seller’s profit step by step: 1. **Initial short sale proceeds**: 10,000 × $16.00 = **$160,000** 2. **Cost to buy back shares**: 10,000 × $12.00 = **$120,000** 3. **Dividend paid to lender**: 10,000 × $0.06 = **$600** 4. **Short rebate interest earned**: 0.375% of $160,000 = **$600** Net profit: $160,000 + $600 - $120,000 - $600 = **$40,000** So the correct answer is **C**.
Author: Manit Arora
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Q-164.3. In March 2011, an investor shorts 10,000 shares of Cisco (CSCO) when the price is $16.00 per share. In April, CSCO pays a dividend of $0.06 per share. In June (three months after initiating the short), the investors close out the short when the price drops to $12.00 per share. During the three months (one quarter), the short also earns a short rebate (interest) of 0.375% on the initial short proceeds; i.e., 1.5% per annum divided by four. Ignoring time value of money, what are the net profits to the short investor?
A
$38,800
B
$39,400
C
$40,000
D
$40,600
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