Which One of the Following Statements Is Correct for an Investor

question 57

Multiple Choice

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

• A) The investor profits when the stock price declines.
• B) Maximum profitability occurs when the stock price equals the exercise price.
• C) The value of the position can decline no further than the option's exercise price.
• D) The option will certainly be exercised.

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Definitions:

Operating Lease

A lease agreement allowing for the use of an asset without ownership, typically with shorter terms and cancelable by the lessee under specific conditions.

Property, Plant, and Equipment

Long-term tangible assets that are used in the operations of a business and are not expected to be consumed or converted into cash within a year.

Reported Amount

The value of an item as presented in financial statements, considering the accounting principles and policies applied by the entity.

Capital Lease

A capital lease is a lease in which the lessee records the leased asset as if it has been purchased, creating both an asset and a liability on the balance sheet.