Question

Personal Accents, Inc., (PAI) is a publicly held company that specializes in selling a variety of skin- and hair-care products. The company owns specialty stores that appeal to both men and women. PAI recently obtained financing through the sale of bonds which have been rated as AAA by Standard. Charlotte is an investor who pays very close attention to high-risk investments because she's interested in the huge profits that can be obtained from this type of investment. Charlotte usually prefers moderately risky investments so she can obtain a profit; but if something goes sour, she will not lose everything. Fearing the potential loss of money in high-risk investments, she has invested in PAI. She feels that the company is established and has maintained stable profits over the years. She is well aware of the different types of high-risk investments, but she chooses to invest more conservatively. Charlotte recently chose an account executive for her investment and financial needs. Which of these would be considered a high-risk investment for Charlotte as a PAI investor?

a. Buying PAI bonds
b. Buying mutual funds that hold PAI stock
c. Selling mutual funds that hold PAI stock
d. Selling PAI stock short e. Buying PAI stocks

Answer 1

The answer is option “d” – selling PAI stock short.

Explanation : Short selling should be done only when the share prices are expected to fall. In this case PAI stocks are set to rise in a gradual manner and short selling will lead to losses.