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Question
Which of the below statements is TRUE?A) Stock options cannot be used to take advantage of the anticipated price movement of individual stocks.
B) An investor can protect against a decline in the price of a stock in her portfolio by buying a call option on that stock.
C) By taking an appropriate position in a suitable stock index option, an institutional investor can create a protective put for part of the diversified portfolio.
D) A protective put buying strategy allows an investor to protect against a decline in the price of a stock in her portfolio by buying a put option on that stock.
Answer
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The FRA's ________ is the rate specified in the FRA at which the buyer of the FRA agrees to pay for funds and the seller of the FRA agrees to receive for investing funds.
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The strength of the binomial model based on yields is that it satisfies the put-call parity relationship by taking into consideration the yield curve, thereby allowing arbitrage opportunities.
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To show how to calculate the hedge ratio, we use notation that includes the following: ________.
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Suppose a portfolio consisting of the long position in the asset and the short position in the call option is riskless and will produce a return that equals the risk-free interest rate. A portfolio constructed in this way is called ________.
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D) a speculative portfolio.
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