Question

In: Finance

An investor who believes a stock price will fall should take a long position in the stock.

A. An investor who believes a stock price will fall should take a long position in the stock.

True

False

B. The maximum loss you can incur on a short sale is _____. The maximum loss you can incur if you have a long position on a stock in a cash account is _____.



Unlimited; initial investment



Zero; unlimited



Limited to your initial margin ; zero



Limited to the margin loan plus interest ; initial margin



Unidentified ; interest on the margin

C. If you lose when a security increases in value, you have a _____ position in the security



Long



Margined



Short



Covered



Wrapped

Solutions

Expert Solution

A - False

An investor who believes a stock price will fall should take a short position in the stock. So, as the price falls, you will earn returns.

B - Unlimited, initial investment

In a short sales, the price of the bond can increase infinitely. Hence, the loss is unlimited. In a cash transaction for a long position, the maximum price loss can be of the initial investment.

C - Short

In a short position, as the price of a security increases, you suffer a loss. If the price reduces, it will be a gain for you.

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jeff jeffy answered 2 years ago
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