Based on the Weight of the Consumer Price Index (CPI),the

question 104

Multiple Choice

Based on the weight of the consumer price index (CPI) ,the price of rental housing increases by 15 percent and that of owned housing by 5 percent.During the same year,the price of gasoline falls by 22 percent.We can say that

• A) the CPI would definitely fall during the year in question.
• B) the CPI would definitely rise during the year in question.
• C) all other factors being constant,it is likely the CPI would rise during the year in question.
• D) all other factors being constant,it is likely the CPI would fall during the year in question.
• E) all other factors being constant,the CPI would change by about 6 percent because that is the average housing change plus the average gasoline change.

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Definitions:

Dynamic Hedging

A strategy that involves adjusting the hedge position dynamically as market conditions change, used to manage risk in trading portfolios.

Static Hedging

A financial strategy that involves setting up a position in options or other securities to mitigate risk, without needing to adjust the position frequently.

Capital Outlay

The amount of money spent on acquiring or improving fixed assets, such as buildings, equipment, and land.

Black-Scholes Option-pricing Model

A mathematical model for pricing European call and put options, using factors like the stock's price, exercise price, risk-free rate, and time to expiration.