If Investors Speculate in the Underlying Asset Rather Than in Derivative

question 22

Multiple Choice

If investors speculate in the underlying asset rather than in derivative contracts on the underlying asset, they will probably achieve ____ returns, and they are exposed to relatively ____ risk.

• A)lower; lower
• B)lower; higher
• C)higher; lower
• D)higher; higher

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Definitions:

Valid

Pertains to the extent to which a concept, conclusion, or measurement is well-founded and corresponds accurately to the real world.

Inductive

A reasoning approach that moves from specific observations to broader generalizations and theories.

Brainstorming

A creative group problem-solving technique that involves generating a large number of ideas to solve a problem without critical judgment.

Deductive Reasoning

A method of reasoning in which a decision is made based on the congruence of multiple assertions commonly accepted as truth.