When Hedging an Equity Portfolio with Stock Index Options, an Increase

question 78

Multiple Choice

When hedging an equity portfolio with stock index options, an increase in the beta of the portfolio will __________ the number of options needed to hedge the portfolio, all else the same.

• A) Increase
• B) Decrease
• C) Not change
• D) Increase only if the beta is less than one
• E) Increase only if the beta is greater than one

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Definitions:

Accelerated Depreciation

A method of depreciation that allocates larger depreciation charges to the earlier years of an asset’s life and smaller charges to later years.

Depletion

An accounting method used to allocate the cost of extracting natural resources over their productive life.

Total Asset Turnover

A financial metric indicating how effectively a company uses its assets to generate sales.

Amortization

The method of slowly deducting the initial value of an asset over time.