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: In the context of binomial option pricing model, a decrease in the stock price volatility will…

A: The question is related to Binomial option pricing model. The binomial option pricing model values…

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: statements is false

A: Investors who sell short assume the stock's price will fall in value. If the price falls, you can…

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: 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: According to the market segmentation theory, short term-term investors will not normally switch to…

A: Market segmentation theory is also referred to as segmented markets theory.

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: Suppose that C is the price of a European call option to purchase a security whose present price is…

A: As a first step, let's assimilate the information given to us: Current stock price is S C is the…

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: What would happen to market efficiency if all investors attempted to follow a passive strategy?

A: A passive strategy is a type of investment strategy that involves holding a diversified portfolio of…

Q: How does regret avoidance contribute to the disposition effect?   What kind of steps do…

A: In the world of investing behavioral science plays a very important role. In fact behavioral…

Q: _3. This is the form an efficient market that if true, then performing a technical analysis will not…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

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: 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: “Even in an efficient market, it is still valid to seek out a ‘favourable’ rate of return from an…

A: An efficient market is one in which all information provided by the company with respect to their…

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: Investors do not get compensated for holding on to diversifiable risk. True False

A: Risk which are particularly to some companies and can be eliminated or reduced by investing in other…

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: What are the recommended options strategies when you expect the market has extreme (high)…

A: We have four basic option strategies: buy call, buy put, write call, and write put, because there…

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: pose stocks X and Y have equal current prices but different volatilities of returns, ax < øy; what…

A: Value of call option depends on the underlying prices and the volatilities of stock return because…

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: What will you do if your market does not develop as quickly as you predicted? What if your market…

A: There are four ways to predict the market- 1)-Momentum 2)-Mean Reversion 3)-Martingales 4)-The…

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…

Q: hanging the market risk premium A. Changes neither the y-intercept nor the slope of the security…

A: The market risk premium is the variations among the expected return on a market portfolio and the…

Q: “Even in an efficient market, it is still valid to seek out a ‘favourable’ rate of return from an…

A: Efficient Market Theory: Equities' pricing should represent all available information, according to…

Q: Increasing leverage lowers the firm’s risk position, yielding the risk-return trade-off. True or…

A: Risk return trade off: return increases as the risk increases