The Following Represent the Expected Values and Standard Deviations for Alternatives

question 11

Multiple Choice

The following represent the expected values and standard deviations for alternatives a-d. Which alternative has the highest absolute risk?

• A)Alternative A has an expected profit of £100,000 and a standard deviation of £18,000
• B)Alternative B has an expected profit of £300,000 and a standard deviation of £75,000
• C)Alternative C has an expected profit of £500,000 and a standard deviation of £70,000
• D)Alternative D has an expected profit of £700,000 and a standard deviation of £60,000

---

Definitions:

Put Option

A financial contract allowing the holder to sell a specific amount of an underlying asset at a predetermined price within a specified time frame.

Hedge Ratio

A ratio used to calculate the amount of derivatives needed to hedge a position or portfolio, often used to minimize risk exposure.

Delta

A measure in financial markets that compares the change in the price of a derivative to the change in the price of its underlying asset.

Gamma

A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying asset.