Question

26. Which of the following statements accurately describe derivatives? 1. They help shift risk from risk averse investors to those investors who wish to assume more risk. 2. They assist in establishing prices for the underlying investment assets. 3. They permit less out-of-pocket investment than direct ownership of the underlying securities. 4. They allow for greater participation in initial public offerings. A. 1 and 2 B. 1, 2, and 3 C. 2, 3, and 4 D. 3 and 4

Answer 1

Hello,
Derivative- Derivative is a contract which derive there value from underlying asset. Derivative can be used to hedged a position.
Derivatives can be used by those investors who has the capability to take a risk.
Option B is correct.
Statement 1 ,2 & 3 are correct these are the features of the derivative.
Statement 4 re not correct.

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