Question5 Old McDonald has sold apples that he does not currently hold or expect to harvest anytime soon. He has entered into a: A short position in apples A short put option A long forward contract A plain vanilla swap A holding position in apples ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

The question describes Old McDonald selling apples that he does not currently hold and does not expect to harvest soon. This situation matches a short position, where the seller has contracted to deliver a commodity in the future without owning it today.
Option 1: A short position in apples
This is the correct interpretation because it directly describes selling something you do not own with the expectation of delivering it later, i.e., a short sale of apples.
Option 2: A short put option
A short put would involve selling the right to sell apples at a specified price to someone else. It does not require or imply that the seller currently has or will deliver apples; it centers on the option contract, not a delivery of actual apples.
Option 3: A long forward contract
A long forward contract is an obligation to buy apples at a future date at a pre-agreed price. That contradicts the scenario of selling apples you do not hold, which would be a short position, not a long forward.
Option 4: A plain vanilla swap
A plain vanilla swap typically involves exchanging cash flows (like fixed for floating interest rates or commodity-based payments) and does not entail delivering or selling a physical position of apples. It does not fit the described action.
Option 5: A holding position in apples
Holding a position would imply owning apples or at least being in a position that reflects ownership or possession, which is the opposite of selling something you do not have.
In summary, the described action aligns with taking a short position in apples, while the other options describe different instruments or situations that do not match the scenario as stated.

Question5 Old McDonald has sold apples that he does not currently hold or expect to harvest anytime soon. He has entered into a: A short position in apples A short put option A long forward contract A plain vanilla swap A holding position in apples ResetMaximum marks: 1 Flag question undefined

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Assume you sell short 100 shares of common stock at $30 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $35 per share? The stock paid no dividends during the period, and assume no other transaction costs.

Shorting a stock, where you only make money if the stock goes down, has never been a successful investment strategy, based on the case studies we reviewed in class.

How does a short seller "cover" a short?

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