Which of the Following Is a Mechanism for Reallocating Risk

question 79

Multiple Choice

Which of the following is a mechanism for reallocating risk?

• A)Risk premiums
• B)Dividend pooling
• C)Diversification
• D)All of these are mechanisms for reallocating risk.

---

Definitions:

Exercise Price

The price at which the holder of an options contract may buy (call) or sell (put) the underlying security.

Warrants

Financial derivatives that give the holder the right, but not the obligation, to buy or sell a stock at a specified price before a certain date.

Conversion Price

The price per share at which a convertible security, such as convertible bonds or preferred shares, can be converted into common stock.

Semi-Annually

A term indicating something that happens twice a year or every six months.