With Regard to Options, Which of the Following Is Not

question 53

Multiple Choice

With regard to options, which of the following is not true of the hedge ratio?

• A) It indicates the change in the option price for a $1 change in stock price.
• B) It represents the ratio of options written to shares held long in a riskless portfolio.
• C) It is frequently greater than 1.
• D) It is commonly referred to as the option's delta.

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Definitions:

NPV Profiles

NPV profiles graphically represent the relationship between the net present value of investments and various discount rates, helping to visualize investment risk and potential returns.

Mutually Exclusive

Projects that cannot be performed at the same time. A company could choose either Project 1 or Project 2, or it can reject both, but it cannot accept both projects.

IRR

Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. It is used to evaluate the attractiveness of an investment or project.

Hard Capital Rationing

Hard capital rationing involves a situation where a company cannot access additional funds for investments at any cost due to external factors, such as market conditions or regulatory limits.