Personal Accents, Inc. (PAI)
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. Recently PAI has obtained financing through the sale of bonds which have been rated as AAA by Standard & Poor's.
Charlotte is an investor who pays very close attention to high-risk investments because she she's interested in the huge profits that can be obtained from this type of investment. Charlotte usually prefers moderately risky investments so that she can obtain a profit; but in case 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.
-Refer to Personal Accents, Inc. Which of these would be considered a high-risk investment for Charlotte as a PAI investor?

Question

Quizplus · Accepted Answer

Selling PAI stock short is considered a high-risk investment because it involves borrowing stock to sell at current prices with the hope of buying it back at a lower price in the future. If the stock price increases instead, the investor faces potentially unlimited losses.