If the Hedge Ratio Is 0

question 96

Multiple Choice

If the hedge ratio is 0.50,this indicates that the portfolio should hold

• A) Two shares of stock for every call option written.
• B) One share of stock for every two call options written.
• C) Two shares of stock for every call option purchased.
• D) One share of stock for every two call options purchased.
• E) Two call options for every put option written.

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Definitions:

Constant Returns to Scale

A situation in which increasing the amount of inputs in production results in a proportional increase in output.

Long-run Total Costs

The total costs incurred by a firm when all factors of production are variable, emphasizing the period where no costs are fixed.

Average-fixed-cost Curve

A curve that shows the relationship between the average fixed cost of producing a good and the quantity of the good produced, typically declining as production increases.

Marginal Product

The increase in output that results from employing one more unit of a particular input, holding all other inputs constant.