Suppose That You Implement Your Hedge from the Last Question

question 81

Multiple Choice

Suppose that you implement your hedge from the last question at F₁($/£) = $2/£. Your cash flows in state 1, 2, and 3 respectively will be

• A)$5,100, $5,000, $5,100.
• B)$5,100, $5,100, $5,100.
• C)$5,000, $5,000, $5,000.
• D)none of the above

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Definitions:

Insiders

Individuals or entities that have access to non-public, material information about a company, often corporate officers, directors, or significant shareholders.

Informationally Efficient

The concept where a market is said to be informationally efficient if all relevant information is fully and immediately reflected in a security's market price.

Allocationally Efficient

Refers to a market scenario where resources are distributed in a way that maximizes the benefits to all participants, considering their preferences and needs.

Random Walk

A theory suggesting that stock market prices evolve according to a random path, making it impossible to consistently predict future movements based on past trends.