When the Portfolio Manager Wants to Hedge a Stock Portfolio

question 10

True/False

When the portfolio manager wants to hedge a stock portfolio using an index futures contract, he or she must know: 1) the total dollar value of the portfolio, 2) the current index futures price, and 3) the relative volatility of the portfolio to the market.

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Definitions:

Sobriety

The state of not being under the influence of alcohol or any intoxicating substance and often refers to maintaining this state.

Unpleasant Stimulus

A negative or adverse stimulus that causes discomfort or aversion in individuals.

Classical Conditioning

A learning process that occurs when two stimuli are repeatedly paired; a response that is initially elicited by the second stimulus is eventually elicited by the first stimulus alone.