The Current Price of a Non-Dividend-Paying Stock Is $40

question 8

Multiple Choice

The current price of a non-dividend-paying stock is $40.Over the next year it is expected to rise to $42 or fall to $37.An investor buys put options with a strike price of $41.
-Which of the following is necessary to hedge the position?

• A)Buy 0.2 shares for each option purchased
• B)Sell 0.2 shares for each option purchased
• C)Buy 0.8 shares for each option purchased
• D)Sell 0.8 shares for each option purchased

---

Definitions:

Sub-Prime Borrowers

Individuals or entities with low credit ratings, indicating a higher risk of default to lenders.

Default Rates

The percentage of borrowers who fail to repay their loans or meet their debt obligations on time, often used as a measure of credit risk.

Adjustable-Rate Mortgages

Home loans with interest rates that can change over time based on market conditions.

Sub-Prime Borrowers

Individuals who have poor credit histories and are considered high risk for defaulting on loan payments, often facing higher interest rates.