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:

Equity Maintenance

Efforts or mechanisms aimed at preserving fairness and equality in relationships, groups, or societal distributions of resources.

Equality Matching

A type of reciprocity based on the idea of balance and fairness, where each participant receives equivalent value in a transaction or relationship.

Social Exchange

People often use a form of everyday economics when they weigh up costs and rewards before deciding what to do.

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An individual's identification with two cultures and the integration of these cultures into their sense of identity.