An Investor Can Duplicate the Payoffs Generated by Taking a Long

question 8

Multiple Choice

An investor can duplicate the payoffs generated by taking a long position in a stock by

• A)buying a put option on the stock and simultaneously selling a call option on the stock and investing the proceeds in Treasury securities.
• B)buying a put and a call on the same stock with the same expiration date, but different strike prices.
• C)buying a call option on the stock, simultaneously selling a put option on the stock, and investing the present value of the strike price in Treasury securities.
• D)buying a call option on the stock and simultaneously selling a call option on the stock with the same expiration date, but a different strike price.

Understand the concept of investment term and maturity and the implications for financing.

Identify the key differences between money markets and capital markets.

Understand the process and significance of indirect and direct transfers in financial markets.

Recognize the roles of institutional investors and their impact on financial markets.

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Definitions:

Formal Reasoning

The process of logical thinking and problem-solving that follows established rules and procedures, typically associated with mature cognitive development.

Analytic Thought

A cognitive process that involves breaking down complex information or problems into smaller parts or basic principles for better understanding and problem-solving.

Deductive Reasoning

A logical process where a conclusion follows necessarily from the stated premises, moving from general premises to a specific conclusion.

Intuitive Thought

A cognitive process that occurs without deliberate analytical effort, often based on quick, gut feelings or experiences.