Typically, people buy shares of stock in the expectation that the stock's price will increase, but it is also possible to make money by correctly anticipating that a stock's price will decline -- "selling short." Assume that you think that Volkswagen (VW) stock is going to decline in price over the next few months because of continuing uncertainty about why the company cheated on its emissions testing. A share of VW stock is currently selling for $50. You arrange to borrow 100 shares of VW stock for three months for a price of $1 per share. Three months later, sure enough, VW stock is selling for only $40 per share. You then purchase 100 shares at $40 each and return the 100 shares of VW stock that you borrowed. How much money did you make or lose? Earned $900 O Lost $1,100 O Lost $1,000 Earned $1,100 Earned $1,000.

Typically, people buy shares of stock in the expectation that the stock's price will increase, but it is also possible to make money by correctly anticipating that a stock's price will decline -- "selling short." Assume that you think that Volkswagen (VW) stock is going to decline in price over the next few months because of continuing uncertainty about why the company cheated on its emissions testing. A share of VW stock is currently selling for $50. You arrange to borrow 100 shares of VW stock for three months for a price of $1 per share. Three months later, sure enough, VW stock is selling for only $40 per share. You then purchase 100 shares at $40 each and return the 100 shares of VW stock that you borrowed. How much money did you make or lose? Earned $900 O Lost $1,100 O Lost $1,000 Earned $1,100 Earned $1,000.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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