Why is it much more risky to take a short position in a stock than a long

Question:

Why is it much more risky to take a short position in a stock than a long position? What does that mean for the likelihood of over- versus undervaluation of a company’s share price?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Valuation Measuring and managing the values of companies

ISBN: ?978-0470424704

5th edition

Authors: Mckinsey, Tim Koller, Marc Goedhart, David Wessel

See More Books

Question Posted: Aug 12, 2015 02:22 AM

See More Questions

A short position in stock can be protected by holding a call option. Determine the profit equations for this position and identify the breakeven stock price at expiration and maximum and minimum...
A hedger takes a short position in five T-bill futures contracts at the price of 98 5/32. Each contract is for $100,000 principal. When the position is closed, the price is 95 12/32. What is the gain...
Why is it much more difficult to establish independence than it is to establish dependence (lack of independence)?
Baseball Magazine, a domestic corporation, markets pictures of baseball players on its website. Its database server is in the Cayman Islands. Baseball fans access the Web page and use their credit...
The pie chart at the left shows the responses of a sample of 614 small-business owners who were asked about their presence on Facebook. Small Businesses Find the mean, the median, and the mode of the...
What is meant by the term barriers to entry ? What are some entry barriers for someone who wants to be an obstetrician? For someone who wants to be a nursing assistant?
28. LO.3 On Thursday, Justin flies from Baltimore (where his sole proprietorship office is located) to Cadiz (Spain). He conducts business on Friday and Tuesday; vacations on Saturday, Sunday, and...
Craig Company uses a predetermined overhead rate to assign overhead to jobs. Because Craigs production is machine intensive, overhead is applied on the basis of machine hours. The expected overhead...
Cul de los siguientes hace que el EPS bsico difiera del EPS completamente diluido? Opcin multiple Garantas. Todas estas opciones de respuesta son correctas. Gestin de opciones sobre acciones....
There is a lottery with n coupons and n people take part in it. Each person picks exactly one coupon. Coupons are numbered consecutively from 1 to n, n being the maximum ticket number. The winner of...
Discuss the possible factors underlying differences in price for the same stock on two different markets, such as the spread between the London and New York prices for a share of Shells common equity...
Discuss the key differences between the stock market downturn in 2001 and the one in 2008.
Find the radius of convergence in two ways: (a) Directly by the CauchyHadamard formula in Sec. 15.2. (b) From a series of simpler terms by using Theorem 3 or Theorem 4.
The 2017 financial statements of LVMH Moet Hennessey Louis Vuitton S.A. are presented in Appendix C at the end of this book. LVMH is a Paris-based holding company and one of the world's largest and...
Repeat Problem 10.E1, except design a packed column using 1-in. metal Pall rings. Do the calculations at the top of the column. Approximate HETP for ethanol-water is $0.366 \mathrm{~m}$. At...
We are separating an ethanol-water mixture in a column operating at atmospheric pressure with a total condenser and a partial reboiler. Constant molal overflow (CMO) can be assumed, and reflux is a...
Corporate Social Responsibility Problem The Global Reporting Initiative (GRI) is a networkbased organization that has pioneered the development of the world's most widely used sustainability...
Draw a bar graph for each data set in Problems 32-35. Data set $\mathrm{D}$ Data set A: The annual wages of employees at a small accounting firm are given in thousands of dollars. 35 25 25 16 14 1...
At a point in a methane reforming furnace we have a gas of the composition $10 \% \mathrm{CH}_{4}, 15 \%$ $\mathrm{H}_{2}, 15 \% \mathrm{CO}$, and $10 \% \mathrm{H}_{2} \mathrm{O}$ by moles....
If |62x|>9, which of the following is a possible value of x? A. 2 B. 1 C. 0 D. 4 E. 7
Describe three types of acts by entity personnel that represent errors.
Whitehurst Associates is considering a substantial investment in the stock of Ivanhoe Enterprises. Ivanhoe currently (time 0) pays a dividend of $3 per share. This dividend is expected to grow at 15...
The Alpha Tool Corporation has never paid a dividend, but the new company president has announced that the firm would pay its first dividend exactly two years from now. That dividend is expected to...
Braggs Fort Corporation has experienced rapidly growing earnings per share at a rate of 20 percent per annum over the past 15 years. The price of the stock of Braggs is $50 per share. Earnings per...
DO NOT GIVE ME AN INCOMPLETE ANSWER FROM CHAT GPT , I WILL KNOW AND I WILL THUMBS DOWN AND CONTACT CHEGG. Jensen Machinery Company manufactures and sells or leases various types of farming equipment....
Dusty would like to buy a new car in six years. He currently has $10,500 saved. Hes considering buying a car for around $14,500 but would like to add a Turbo engine to increase the cars performance....
The auditors report on an issuers financial statements includes all of the following except : Multiple Choice An indication that the audit was conducted in accordance with standards of the PCAOB. An...

Why is it much more risky to take a short position in a stock than a long

Question:

Step by Step Answer:

It is more risky to take a short position in an overpriced stock because of the extra costs and th...View the full answer

Valuation Measuring and managing the values of companies

Students also viewed these Corporate Finance questions