Put Options Are Typically Used to Hedge When Portfolio Managers

question 21

Multiple Choice

Put options are typically used to hedge when portfolio managers are mainly concerned about

• A)a permanent decline in a stock's value.
• B)a permanent increase in a stock's value.
• C)a temporary decline in a stock's value.
• D)a temporary increase in a stock's value.

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Definitions:

Accounts Receivable

Amounts owed to a business by customers for goods or services delivered but not yet paid for, represented as a current asset on the balance sheet.

Allowance Method

A method in accounting used to estimate bad debts expense by anticipating which accounts receivable may not be collected.

Balance Sheet Accounts

Accounts reported on the balance sheet, representing the company's assets, liabilities, and equity at a specific point in time.

Direct Write-off Method

An accounting method where bad debts are charged against income at the time they are determined to be uncollectible, rather than being estimated and accounted for in advance.