Short Selling Involves Selling a Security

question 25

Multiple Choice

Short selling involves selling a security:

• A) you do not own.
• B) that you have owned for less than one year.
• C) at a price below current market value.
• D) for less than you originally paid to purchase it.

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Definitions:

Option

A financial derivative that gives the holder the right, but not the obligation, to buy or sell an asset at a set price within a specific period.

Firm Completion

A commitment to finish a project or deliver a product by a specified date.

Asymmetric Information

Assumes managers have more complete information than investors about a firm’s prospects—can have an important effect on capital structure.

Diversified Portfolios

Investment strategies involving the mixing of various asset classes and securities to reduce risk through diversification.