An Investor Is Bearish on a Particular Stock and Decided

question 59

Multiple Choice

An investor is bearish on a particular stock and decided to buy a put with a strike price of $25.Ignoring commissions,if the option was purchased for a price of $0.85,what is the break even point for the investor?

• A) $24.15
• B) $25.00
• C) $25.87
• D) $27.86

Recognize the importance of diversification in reducing investment risk.

Understand the risk-return trade-off in investing.

Understand the relationship between future profit expectations and stock prices.

Differentiate the performance and purposes of index funds versus actively managed mutual funds.

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Definitions:

Coupon Rate

The annual interest earnings of a bond, represented as a percentage of its stated value.

Yield To Maturity

The total return expected on a bond if held to its maturity date, taking into account its current market price, interest payments, and face value.

Par Value

The face value of a bond or a stock, representing the amount that will be paid back at maturity for bonds or the nominal value of a stock.

Catastrophe Bond

A high-yield debt instrument designed to raise funds for companies in the insurance industry to cover the risk of natural disasters.