A Risk-Neutral Individual Will

question 181

Multiple Choice

A risk-neutral individual will

• A) accept only better-than-fair gambles.
• B) accept fair gambles but reject better-than-fair ones.
• C) accept any gamble with an expected value of zero or more.
• D) accept only gambles with an expected value of one or more.
• E) see risk as neither good nor bad.

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Definitions:

Protective Put

A defensive financial strategy that involves buying a put option for a stock that is already owned, giving the holder the right to sell the stock at a specified price, thereby providing a hedge against potential declines.

Downside Risk

The potential for loss in value of an investment, often evaluated in comparison to the expected return.

Seller Of A Put

An investor who sells put options in the expectation that the underlying stock price will remain above the option's strike price.

Purchase Shares

The act of buying ownership units in a company, often done through a stock exchange, to potentially earn dividends or sell at a higher price in the future.