Which of the Following Statements Is Correct for an Investor

question 81

Multiple Choice

Which of the following statements is correct for an investor who has purchased "portfolio insurance" by owning the stock and buying a put option on the stock?

• A) The investor profits when the stock price declines.
• B) Maximum profitability occurs when stock price equals strike price.
• C) Value per share can decline no further than the strike price less the value of the option premium.
• D) The option will certainly be exercised.

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Definitions:

Legal Position

The stance or standpoint taken by a party on legal matters, based on rights, laws, and responsibilities.

Infant

A minor or young child, especially one below the age of legal adulthood.

Binding on Infants

The legal principle that certain contractual agreements, despite involving minors (infants under the law), are enforceable against them, typically involving necessities or education.

Residents of Enemy Country

Individuals living in a nation that is currently in a state of conflict or war with another country, which could affect their legal status and rights under international law.