Questions: Your customer sells 100 shares of Small Co., Inc., common stock at 50 per share. After six months, they close the short position at 40 per share. Small Co. does not pay a dividend. What is the total return?

The answer is neither A nor B: the total return is actually 20%.

Explanation: To calculate the total return on a short sale, we need to consider the difference between the selling price and the closing price of the stock.

1. The customer sells 100 shares at $50 per share.

   • Total proceeds from the sale: \( 100 \times 50 = \$5000 \)

2. After six months, the customer buys back (closes the short position) 100 shares at $40 per share.

   • Total cost to buy back the shares: \( 100 \times 40 = \$4000 \)

3. The profit from the short sale is the difference between the selling price and the buying price.

   • Profit: \( \$5000 - \$4000 = \$1000 \)

4. To find the total return, we calculate the profit as a percentage of the initial amount received from the sale.

   • Total return: \( \frac{\$1000}{\$5000} \times 100\% = 20\% \)

Therefore, the total return is 20%.