If an Investor Sells a Stock Short, That Individual

question 19

Multiple Choice

If an investor sells a stock short, that individual
Reduces the risk of loss by

• A) buying a put
• B) buying a call
• C) entering a limit order to sell the stock if its price declines
• D) increasing the collateral with the broker

---

Definitions:

Diversification

Diversification is an investment strategy that involves spreading investments across various financial instruments, industries, or other categories to reduce risk.

Risk Premium

The extra return above the risk-free rate that investors demand as compensation for the risk of an investment.

Systematic Risk

The risk inherent to the entire market or market segment, unavoidable through diversification.

Security Market Line

A line that represents the relationship between the risk of an investment and its expected return, based on the capital asset pricing model (CAPM).