All of the Following Are Methods Whereby a Hedge Is

question 21

Multiple Choice

All of the following are methods whereby a hedge is accomplished EXCEPT:

• A)Using derivative securities
• B)Owning several shares of a company's stock
• C)Buying or selling a forward contract
• D)Using an option in the cash market

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Definitions:

Option to Abandon

A clause in an investment contract granting the investor the right to withdraw from the project under certain conditions, typically to minimize losses.

NPV

Net Present Value; a calculation that compares the value of money now to the value of that money in the future, taking inflation and returns into account.

Static DCF Analysis

A method of valuing a project, company, or asset using the concepts of the time value of money where all cash flows are assumed to occur at fixed points in time.

Option to Expand

The option to expand is a strategic flexibility available to companies, allowing them to increase their investment in a project based on future market conditions or performance indicators.