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:

Labor-Leisure Framework

A model in economics that illustrates the trade-off between labor, supplying work for income, and leisure, the time spent not working.

Equilibrium Wage

The wage rate at which the supply of labor matches the demand for labor, leading to an equilibrium in the labor market.

Competitive Labor Market

A market where numerous buyers (employers) and sellers (workers) exist, leading to wages derived from supply and demand conditions.

Marginal Product

The additional output that is generated by employing one more unit of a particular input.