Question

An investor sells 100 shares of stock short at $50. The price of the stock rises to $60 and the investor buys to cover the shares. What is the profit or loss for the investor? Responses

a)$1000 loss
b)$10,000 profit

Answer 1

The investor incurs a loss of $1000.

Step-by-step explanation:

When an investor sells a stock short, they borrow the stock from a broker and sell it in the hopes that the price will decrease. If the price does go down, the investor buys the stock back at a lower price and returns it to the broker, making a profit. However, if the price goes up, the investor incurs a loss. In this case, the investor sold 100 shares of stock short at $50 and the price rose to $60. Therefore, the investor incurred a loss of $10 per share, resulting in a total loss of $1000.