You might want to sell an option to prevent further losses if its market price is dropping. True False

Q: Explain briefly how the Monte Carlo Method differs from traditional models for pricing options and…

A: The Monte Carlo method is a numerical technique that uses repeated random sampling to obtain…

Q: If you want to buy a particular stock but are worried thatdemand from investors could push the price…

A: you want to buy a particular stock but are worried thatdemand from investors could push the price to…

Q: If you have long position in one asset and you want to hedge the risk of price drop in that asset…

A: With the help of a hedging strategy, the investor generally reduces or set off the risk while…

Q: Identify the correct statement related to the choice of exercise price for buying a call. Select…

A: Correct Option in 'c' 'A higher strike price results in smaller gains on the upside but smaller…

Q: Time value of American option represents the value of keeping option alive and waiting till a later…

A: Solution: Option premium comprises or two values: Intrinsic value and Time value.

Q: If the underling is a liability rather than an asset, then the option premium should become…

A: The main objective of the derivative market is to secure the investment portfolio against price…

Q: My question is for a synthetic call option why do we need to borrow the present value of the strike…

A: Synthetic calls and synthetic puts are the two types of synthetic options available. Both forms of…

Q: f a stock's expected return as seen by the marginal investor exceeds his or her required return,…

A: Required rate of return is the minimum return that an investor expects from his investment. It is…

Q: ue/ False There is a possibility of unlimited loss to put option buye

A: A put option is an instrument which provides its holder an option to sell an underlying asset on a…

Q: The maln rule In Investing Is: Select one: O a. don't invest unless the percelved risk is high…

A: Investor should consider various aspects before investing in any security or portfolio. Some of the…

Q: which one is true? for any type of option strategy, the payoffs will never be negative  for any type…

A: Option C is true.

Q: When market rates of interest rise after a fixed-rate security is purchased, the value of the…

A: Held-to-maturity security:   The debt security which are held by an investor with an intention to…

Q: Your friend’s portfolio consistently plots above the Security Market Line. As a result, your friend…

A: The securities which are plotting above the security market line is considered undervalued in nature…

Q: Which strategy would be best for Kelly to deploy if she thinks the stock market will decline and she…

A: From the statement it can be interpreted that Kelly is long on the stock. Because of  this she wants…

Q: True or False

A: The question is asking whether an increase in volatility would increase the cost of an options…

Q: The buyer of the option is not obliged to complete the deal and will do so only if changes in price…

A: Option contracts are the contracts which gives the buyer the right to buy or sell the underlying…

Q: Why are options being sold at prices higher than their strike value?

A: Option: An option is a special type of contract which gives its holder the right but not obligation…

Q: A. Is selling a put option the same as buying a call option? Explain your answer. B. What is a…

A: Note: A and B parts of the question are of finance module Part C is from Operation Management and…

Q: An asset manager and he is overweight in equities because he believes that equities have more upside…

A: There are several ways to hedge equity portfolio against a downturn. Using derivatives is one such…

Q: "If a security plots below the security market line, it is: " O ignoring all of the security's…

A: Security market line : Security market line represents the beta and expected return of a security on…

Q: Which of the following statements is​ FALSE?       A. You invest today only when the NPV…

A: The objective of the question is to identify the false statement among the given options related to…

Q: Why does the limitation of Portfolio analysis is It suggests the use of standard strategies that can…

A: The portfolio is basically a set of various financial instruments that are owned by an individual or…

Q: Explain why the delta hedging of a negative gamma options position loses money.

A: Delta hedging is a technique used by traders to manage the risk associated with options positions.…

Q: To hedge, a user of an energy resource wants price protection from rising prices. The user decides…

A: Options are the derivative instrument that can be used by the investors to hedge their risk of loss.…

Q: In equilibrium, stock prices are stable and there is no general tendency for people to buy versus to…

A: Intrinsic Value for Stock is discounted value of all future benefits computed using required return…

Q: Using carefully drawn diagrams to support your answer, would a short hedger buy a PUT or sell a CALL…

A: Hedging is used by various investment bankers, portfolio managers, investors and traders to offset…

Q: The CAPM states that expected returns depend on an asset’s loading on market risk.

A: CAPM stands for capital asset pricing model. This model was developed by William. F. Sharpe. As per…

Q: An increase in investor risk aversion would be expected to:   Increase the Risk-Free Rate while…

A: We have to assess the impact of an increase in investor risk aversion on risk free rate and the…

Q: Select all that are true with respect to real options. Out-of-the-money real options have value.…

A: The objective of the question is to identify the true statements about real options. Real options…

Q: If the underling is a liability rather than an asset, then the strike price of the option should be…

A: The option is a financial security since a buyer can purchase the right rather than the obligation…

Q: We understand standard deviation of returns as a measure of risk and rational investors would like…

A: Option is a future right not an obligation to sell or buy the underlying asset or security at a…

Q: If you observe open interest is increasing and prices are moving higher, which of the following…

A: Technical analysis is the technique that tries to predict future movements of the market by studying…

Q: It's acceptable to use the Black-Scholes formula or binomial trees to value real options,even though…

A: Black Scholes and binomial models are the valuation models to value an option.

Q: Options can be risky because it's a leveraged strategy.   True or False

A: Option are very good way to hedge the market and earn unlimited profit on that.

Q: did hedging reduce volatility of the realized price?Answer Yes or No and explain

A: Hedging can be referred as a strategy that is used by the investors to reduce the risk associated…

Q: the following strategy would you adopt if you expect the fall in prices of a stock? A. Buy a call B.…

A: Hedging is the way to reduce the risk in the future that can be done by the buying stock options and…

Q: Which of the below statements is false about real options?  A. Real options increase firm value…

A: Real options are also such options which will be providing various types of opportunities for…

Q: In our study of Real Options, we learned about the many benifits of Real Options. Of the below,…

A: Real options refer to the strategic flexibility that decision-makers have in adapting to changing…