The Current Price of a Non-Dividend-Paying Stock Is $40

question 8

Multiple Choice

The current price of a non-dividend-paying stock is $40.Over the next year it is expected to rise to $42 or fall to $37.An investor buys put options with a strike price of $41.
-Which of the following is necessary to hedge the position?

• A)Buy 0.2 shares for each option purchased
• B)Sell 0.2 shares for each option purchased
• C)Buy 0.8 shares for each option purchased
• D)Sell 0.8 shares for each option purchased

Understand the basic emotions and their identification.

Recognize the impact of economic and material conditions on emotional well-being.

Understand the concept and implications of the endowment effect in economic behavior.

Recognize various cognitive biases and their impact on decision-making, including status quo bias, framing effect, and anchoring effect.

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Definitions:

Present Value

The present value of a future amount of money or series of cash flows, taking into account a particular rate of return.

Rate of Interest

The percentage of a sum of borrowed money that is paid by the borrower to the lender for the use of that money for a certain period.

Frank Knight

was an influential American economist known for his work on risk, uncertainty, and the role of the entrepreneur in economic theory.

Probability

The measure of the likelihood that an event will occur.