Which of the following statements is false?
A short sale allows investors to generate additional profits from a decline in a security’s price.
One of underlying assumptions of technical analysis is that supply and demand are driven by both rational andirrational investor behavior.
Investors get a margin call if the equity in a margin account rises above the required maintenance level.
Technical analysis cannot modify price manipulations.
- Investors who sell short assume the stock's price will fall in value. If the price falls, you can purchase the shares at a lower cost and profit. If the stock price rises and you purchase it again afterward at a higher price, you would then lose money. Short selling is only for seasoned investors.
Therefore, Option A "A short sale allows investors to generate additional profits from a decline in a security’s price." is true.
- When the valuation of equities in a brokerage account falls below a specific level, known as the maintenance margin, the account holder is required to deposit extra funds or securities to fulfill the margin requirements.
Therefore, Option C. "Investors get a margin call if the equity in a margin account rises above the required maintenance level." is true.
- Critics of technical analysis assert that history does not precisely repeat itself, so the assumption underlying technical analysis is incorrect. Critics argue that studying price patterns is pointless because history does not duplicate itself.
Therefore, Option D. "Technical analysis cannot modify price manipulations." is true.
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