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

question 21

Multiple Choice

Use VaR techniques to determine the cost of insurance on a risky investment.The investment asset has a value of $80 and pays no dividend.The historical standard deviation of the asset is 15% and the expected return on the asset is 8%.At the 95% confidence level,what is the price of a put option that insures the asset over the next year?

• A) $2.56
• B) $1.25
• C) $0.86
• D) $0.15

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