Question1 Old McDonald has sold apples that he does not currently hold or expect to harvest anytime soon. He has entered into a: A long forward contract A holding position in apples A short put option A short position in apples A plain vanilla swap ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

To approach this question, I’ll evaluate what each choice implies about Old McDonald’s situation with apples he doesn’t hold and doesn’t expect to harvest soon.
Option 1: 'A long forward contract' — A long forward would mean agreeing to buy the apples in the future at a specified price. Since the scenario states he does not hold the apples and does not expect to harvest soon, taking a long forward would obligate him to buy later, which doesn’t align with selling or being short on the position. This option is inconsistent with the described position.
Option 2: 'A holding position in apples' — A holding position (long position) in inventory would mean he currently owns apples or holds ownership rights. The stem says he does not hold them, so this contradicts the described facts. It’s not the correct characterization.
Option 3: 'A short put option' — A short put option would give someone else the right to sell apples to him at a strike price, potentially obligating him to buy if exercised. Since the scenario emphasizes selling apples he does not hold, a short put would create a potential obligation to purchase if the option is exercised, not a direct statement about his selling position. While it could interplay with selling activity, it doesn’t directly match the description of having sold apples he doesn’t hold.
Option 4: 'A short position in apples' — A short position means the seller has not borrowed or does not own the commodity and is obligated (or has committed) to deliver or cover later, typically by borrowing or with futures/forward contracts. Given the information that Old McDonald sold apples he does not hold or expect to harvest anytime soon, this perfectly describes a short position: he has sold apples he doesn’t possess and cannot deliver in the near term.
Option 5: 'A plain vanilla swap' — A plain vanilla swap would involve exchanging cash flows, often tied to price or rate differences, but it does not inherently describe a position of selling a commodity he does not hold. Swaps are more about interest or price-flows over time and aren’t the usual instrument implied by selling a commodity you don’t have. This option doesn’t fit the scenario.
Putting the pieces together, the most coherent characterization of selling apples you don’t hold or expect to harvest soon is a short position in apples, since that term captures the obligation or status of having sold something not currently owned. Each of the other options either implies ownership, a different kind of contract, or a mechanism that doesn’t directly align with the described action and constraint. The reasoning above shows how the terms map to the given situation and why the chosen description best fits.

Question1 Old McDonald has sold apples that he does not currently hold or expect to harvest anytime soon. He has entered into a: A long forward contract A holding position in apples A short put option A short position in apples A plain vanilla swap 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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