Which of the Following Statements About Hedging a Stock Portfolio

question 25

Multiple Choice

Which of the following statements about hedging a stock portfolio with stock index futures is NOT true?

• A)Futures contracts magnify gains (or losses) on the stock portfolio
• B)In a declining market, futures contracts help offset losses on the portfolio
• C)A risk-taker would probably not hedge the entire portfolio with stock index futures
• D)All of the above are true

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Definitions:

Polarization

The division into two sharply contrasting groups or sets of opinions or beliefs.

Referents

Objects, events, or concepts that words or phrases denote or stand for in communication.

Vocalizations

The production of sounds with the voice, as a form of communication among humans or other animals.

Symbols

Objects, figures, or colors used to represent ideas or concepts.