Question

29. What strategy could be considered insurance for an investment in a portfolio of stocks? A. Covered call B. Protective put C. Short put D. Straddle E. None of the above 30. Why is the buyer of an option not required to post margin under the Option Clearing Corporation rules? A. Once an option is purchased, no further money is at risk B. The writer pays all the costs C. The credit worthiness of the buyer covers all potential losses D. The buyer must post securities instead of margin E. None of the above 31. A 'complete portfolio' refers to an investment in A. The risk-free asset B. The risky portfolio C. The risk-free asset and the risky portfolio combined D. The risky portfolio and the index E. None of the above 32. Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor A. is normally risk neutral B. requires a risk premium to take on risk C. knows he or she will not lose money D. knows the outcomes at the beginning of the holding period E. none of the above

questions 29-32 please

Answer 1

29.

Correct option is "B" - Protective Put

Explanation: In protective put, the investor who had invested in share portfolio, buys the put option to safeguard his position from the fall of the share price. If the share price in which the investement was made, is expected to fall then in such situation the investor buys the put option of that share and if the share price goes down, then the loss is set off or adjusted. Hence, the protective put also call the insurance for the investment.

30.

Corerct option is "A" - Once an option is purchased, no further money is at risk.  

Explanation: The buyer of the option, only need to pay the option premium and there is no further loss for the option buyer. Therefore , the option buyer need not to post the margin under option.

31.

Correct option is "C" - The risk free assets and the risky portfolio combined.

Explanation: The complete portfolio contains the both risk free assets and risky assets because if the only risk free assets are purchased then the overall return can not be maximized because the higher return of the risky portfolio will be fogone. On the other side, if the only the risky assets are purchased, then the portfolio will became very risky.

Therefore, the combined portfolio is considered always a complete portfolio.

32.

Correct option is " B" - Requires the risk premium to take the risk.

Explanation: A good Investor takes the risky assets, only when it is expected to have some premium (return) for taking the risk.