wht does buying short have to do with this?

Question

an investor buys 100 shares short at $43. if hte investor closes the sale at $37, what was the percentage earned on the investment?

Answer 1

Your terminology is off. If the investor sells 100 shares short @ 43, he receives $4300. If he covers at 37 (i.e., buys the shares to close the position), he pays $3700. Gain = $600. 600/4300 = 13.95% (rounded). This example ignores commission, margin expense, interest he may have received on the $4300, and dividends he may have had to pay while short the 100 shares.

There may be a trick in this question: Should $4300 be the divisor? He hasn't really "invested" $4300. He has borrowed stock and then sold it. If anything, he has invested a negative $4300, i.e., borrowed it. Good luck on this aspect of the question. I don't know the answer.