George has heard a rumor that a major pet food company will be forced to recall millions of cans of pet food due to contamination. If the rumors are true, the company's stock price will decline sharply. Which one of the following strategies would allow George to earn a profit if the rumor proves to be true?

Question

Quizplus · Accepted Answer

Selling the stock short involves borrowing shares and selling them with the intention of buying them back at a lower price. If the company's stock price declines due to the recall, George can buy back the shares at the lower price, return them to the lender, and keep the difference as profit.

George Has Heard a Rumor That a Major Pet Food