Question1 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 plain vanilla swap A long forward contract A short put option A holding position in apples ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

Consider what each option implies about ownership and obligations with apples.
Option 1: A short position in apples. This describes selling apples that you do not currently own and do not expect to hold in the near term, creating an obligation to deliver apples in the future. This matches the scenario of selling apples you don’t have yet, so this option is consistent with a short position.
Option 2: A plain vanilla swap. A swap is typically an agreement to exchange cash flows or assets over time based on price indices or rates. It does not by itself describe selling physical apples you do not own or an obligation to deliver real apples, so this option does not fit the described action.
Option 3: A long forward contract. A long forward obligates the holder to buy the underlying asset at a specified price at a future date. Since the description states selling, not buying, and not holding or expecting harvest soon, this is inconsistent with a long forward.
Option 4: A short put option. A short put involves selling the right for someone else to sell you apples at a set price, which could create a future obligation to buy if exercised, but it is a derivative position initiated by selling a put. It does not describe the act of selling apples you do not hold; it describes selling a put option, which is not the same as selling the asset itself.
Option 5: A holding position in apples. A holding position would imply you own or possess the apples, whereas the scenario specifies selling apples you do not currently hold or expect to harvest soon, so this contradicts the description.
In summary, the activity described—selling apples you do not hold or expect to harvest soon—best aligns with taking a short position in apples, because it involves an obligation to deliver apples you do not possess at the outset.

Question1 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 plain vanilla swap A long forward contract A short put option 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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