The Payoffs from Holding a Call Option Can Be Replicated

question 50

Multiple Choice

The payoffs from holding a call option can be replicated by:

• A) borrowing money to buy a put option.
• B) borrowing money to invest in the stock.
• C) simultaneously selling a call and buying a put.
• D) simultaneously buying a share and buying a put.

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Definitions:

Financial Risk

The possibility of losing money on an investment or business venture.

Open Market Operations

Technique in which the Fed buys or sells government bonds to affect the supply of money and credit.

Reserve Requirements

Regulations set by central banks determining the minimum amount of reserves that must be held by a commercial bank, used as a tool in monetary policy.

Investment Banker

An investment banker is a financial professional who advises and assists corporations and governments in raising capital, through issuing and selling securities.