SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 24: Answer and Explanation

Question: 24

Which of the following is not accomplished with an expectation of profit if the security's price declines?

• A. Short sale
• B. Sale of a put
• C. Purchase of a call
• D. Purchase of a security

Correct Answer: D

Explanation:

D: Choice D is correct because a security is purchased with the expectation of an increase in the price, at which time it would be sold at a profit. Choices A, B, and C are each done with the expectation of a positive return if the price decreases, because each involves the opportunity to purchase the security at a lower price than the current price, having either already having sold the borrowed security or purchased the security at a favorable price or purchased the prerogative to purchase the security at a favorable price, when compared with the anticipated future lower price.