When Stock Portfolio Managers Use Dynamic Asset Allocation by Purchasing

question 50

Multiple Choice

When stock portfolio managers use dynamic asset allocation by purchasing call options on a stock index, they ____ their exposure to stock market conditions.

• A)reduce
• B)completely eliminate
• C)have no effect on
• D)increase

---

Definitions:

Cost Of Capital

The necessary yield a business needs to achieve on investment endeavors to preserve its market capitalization and secure capital.

Discount Rate

The interest rate used to determine the present value of future cash flows or to evaluate the attractiveness of an investment.

Opportunity Cost

The cost of an alternative that must be forgone in order to pursue a certain action, essentially the benefits you could have received by taking another course of action.

EVA

Economic Value Added, a measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit.