Portfolio a Consists of 400 Shares of Stock and 400

question 34

Multiple Choice

Portfolio A consists of 400 shares of stock and 400 calls on that stock. Portfolio B consists of 500 shares of stock. The call delta is 0.5. Which portfolio has a higher dollar exposure to a change in stock price?

• A) Portfolio B
• B) Portfolio A
• C) The two portfolios have the same exposure.
• D) Portfolio A if the stock price increases and portfolio B if it decreases
• E) Portfolio B if the stock price increases and portfolio A if it decreases

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Definitions:

Merchandising Company

A type of business that purchases products to resell them at a profit without changing their form.

Ending Finished Goods

The inventory of goods manufactured and ready for sale at the end of an accounting period.

Cost of Goods Manufactured

The total production cost of goods completed during a specific period, including the costs of materials, labor, and manufacturing overhead.

Direct Materials

Direct materials are raw materials that are directly traceable to the manufacturing of a product and are an essential part of the finished product.