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An Investor Wants to Hedge the Microsoft Stock He Holds

question 68

Essay

An investor wants to hedge the Microsoft stock he holds in his portfolio. How can he use a protective put to do this?


Definitions:

Expected Rate of Inflation

An estimate of the rate at which the general level of prices for goods and services will rise over a period.

Annual Real Rate

The annual rate of return on an investment, adjusted for inflation, indicating the real increase in the value of the investment over a year.

Inflation Rate

The pace at which prices for goods and services increase, leading to a decrease in purchasing power.

Nominal Rate of Interest

The advertised interest rate on a loan or investment, not accounting for inflation.

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