Which of the Following Statements Is FALSE

question 19

Multiple Choice

Which of the following statements is FALSE?

• A)Out-of-the-money calls have the highest expected returns and out-of-the-money puts have the lowest expected returns.
• B)The expression SΔ/(SΔ +B)is the ratio of the amount of money in the stock position in the replicating portfolio to the value of the replicating portfolio (or the option price);it is known as the leverage ratio.
• C)The beta of a portfolio is just the weighted average beta of the constituent securities that make up the portfolio.
• D)The magnitude of the leverage ratio for options is usually very small,especially for out-of-the-money options.

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Definitions:

Total Costs

The complete cost of producing a good or service, including both fixed and variable costs.

Demand Schedule

A table that lists the quantity of a good or service that consumers are willing to buy at different prices.

Marginal Cost

The expense associated with manufacturing an additional unit of a product or service.

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