Which of the Following Is a Reason for Hedging a Portfolio

question 12

Multiple Choice

Which of the following is a reason for hedging a portfolio with an index futures?

• A) The investor believes the stocks in the portfolio will perform better than the market but is uncertain about the future performance of the market
• B) The investor believes the stocks in the portfolio will perform better than the market and the market is expected to do well
• C) The portfolio is not well diversified and so its return is uncertain
• D) All of the above

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Definitions:

Producer Surplus

The difference between what producers are willing to sell a good for and the actual price they receive.

Tariff

A tax imposed by a government on imported or exported goods.

Total Surplus

The sum of consumer and producer surplus, representing the total benefit to society from the production and consumption of goods or services.

Trade

The exchange of goods, services, or both between two or more parties.