Assume that the price of ABC common stock fell in a short period of time from $105 to $84.Which of the following investors probably made the most money?
A)Abe took a long position in 1,000 shares of ABC.
B)Bert took a short position in 1,000 shares of ABC.
C)Carrie kept her money in CDs at the bank.
D)Darren shorted 2,000 shares of ABC using a margin loan.
E)Earl used a margin loan to finance a 2000-share long position in ABC.

Question

Quizplus · Accepted Answer

Darren shorted 2,000 shares of ABC using a margin loan. Since the price of the stock fell, Darren would make a profit on his short position. With the use of margin loan, his returns would be magnified, thus making him the investor who probably made the most money. The other options either did not have exposure to ABC stock or were in long positions, resulting in losses.

Assume That the Price of ABC Common Stock Fell in a Short