Which of the Following Is an Example of Rationalization

question 51

Multiple Choice

Which of the following is an example of rationalization?

• A) A ?rm diversi?es into unrelated markets, increasing its level of risk.
• B) A ?rm merges with another ?rm and reduces costs by combining managerial functions.
• C) One ?rm acquires another smaller ?rm although the managers at the smaller ?rm attempted to resist the takeover.
• D) A ?rm uses share-based equity ?nancing for mergers, instead of cash.

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Definitions:

Put Premium

The price that must be paid to purchase a put option, which gives the holder the right but not the obligation to sell a specified quantity of an underlying asset at a set price within a specified time.

Maximum Profit

The highest possible financial gain achievable from an investment or business operation, often estimated under ideal conditions.

Stock-Index Option Markets

Marketplaces where options based on the movements of stock market indices are traded, allowing investors to speculate or hedge against market swings.

Uncovered Call Option

An option contract that is sold without holding an offsetting position in the underlier, thus exposing the seller to unlimited risk.