Which of the Following Statements Is Correct for an Investor

question 81

Multiple Choice

Which of the following statements is correct for an investor who has purchased "portfolio insurance" by owning the stock and buying a put option on the stock?

• A) The investor profits when the stock price declines.
• B) Maximum profitability occurs when stock price equals strike price.
• C) Value per share can decline no further than the strike price less the value of the option premium.
• D) The option will certainly be exercised.

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Definitions:

Equilibrium Quantity

The quantity of goods or services supplied equals the quantity demanded at the market equilibrium price.

Domestic Demand Curve

A graphical representation showing the quantity of a product that consumers in a domestic market are willing to purchase at various prices.

World Price

The international market price of a good, influenced by global supply and demand factors.

Importing Steel

The act of bringing in steel from other countries to meet domestic demand or for manufacturing purposes, often due to a lack of local supply or cost effectiveness.