Use VaR Techniques to Determine the Cost of Insurance on a Risky

question 17

Multiple Choice

Use VaR techniques to determine the cost of insurance on a risky investment.The investment asset has a value of $150 and pays no dividend.The historical standard deviation of the asset is 20% and the expected return on the asset is 15%.At the 95% confidence level,what is the price of a put option that insures the asset over the next 6 months?

• A) $0.33
• B) $1.25
• C) $2.65
• D) $6.56

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Definitions:

Experimental Group

A group in an experiment that receives the variable being tested, which is compared to a control group that does not receive the test variable.

Control Group

In experimental research, a group of subjects that does not receive the experimental treatment, used for comparison purposes.

Violent Behavior

Involves actions with the intent to cause physical harm or damage to others or property, often associated with aggression and anger.

Imitating Behavior

The action of copying or mimicking the actions, gestures, or speech of others, often a learning method.