Explanation:
The following are the cash flows of the investor during the months:
In April, the manager received a cash inflow of €913,600 as a result of shorting the 2,000 shares of Solar Computers Corp:
$2,000 \text{ Short shares} \times €456.8 \text{ per share} = €913,600$
In July, the shares earned a dividend of €1.85 per share, which was transferred to the lender of the shares:
$2,000 \text{ shares} \times €1.85 = €3,700$
In September, the shares were purchased at a price of €455.8 to close the short position. Thus, the cash outflow for September is:
$2,000 \text{ shares} \times €455.8 = €911,600$
And the net cash flow of the investor is:
Q.665 An investment manager at Galaxy Asset Management instructs his broker to short sell 2,000 shares of Solar Computer Corp. in April. The broker borrowed the shares from another client and shorted the 2,000 shares of Solar at €456.8 per share. The manager then asked the broker to close the short position in mid-September when the price per share got to €455.8. If the shares paid a dividend of €1.85 per share in July, then calculate the net payoff of the investment manager after closing out the position. (For this question, assume there are no fees, commissions, or margins.)
A
The investment manager will receive a net cash inflow of €913,600.
B
The investment manager will pay a net cash outflow of €911,600.
C
The investment manager will pay a net cash outflow of €1,700.
D
The investment manager will pay a net cash outflow of €3,700.
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