A Portfolio Manager in Charge of a Portfolio Worth $10

question 9

Multiple Choice

A portfolio manager in charge of a portfolio worth $10 million is concerned that the market might decline rapidly during the next six months and would like to use put options on an index to provide protection against the portfolio falling below $9.5 million.The index is currently standing at 500 and each contract is on 100 times the index.What should the strike price of options on the index be the portfolio has a beta of 0.5? Assume that the risk-free rate is 10% per annum and there are no dividends.

• A) 400
• B) 410
• C) 420
• D) 425

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Definitions:

Personality Theorist

A psychologist or scholar who specializes in the study of personality, developing theories to explain personal identity and individual differences.

Henry Murray

An American psychologist best known for developing the theory of needs, which identified specific psychogenic needs that motivate human behavior.

Assertiveness

The quality of being self-assured and confident without being aggressive, allowing for the expression of one's needs and desires in a clear and respectful manner.

Personality Trait

A consistent pattern of thought, behavior, or emotion that is stable across time and situations.