An Equity Portfolio Manager Can Neutralize the Risk of Falling

question 57

Multiple Choice

An equity portfolio manager can neutralize the risk of falling stock prices by entering into a hedge position where the payoffs are

• A) not correlated with the existing exposure.
• B) positively correlated with the existing exposure.
• C) negatively correlated with the existing exposure.
• D) at breakeven with the existing exposure.
• E) imperfectly correlated with the existing exposure.

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Definitions:

Government Contracts

Agreements entered into between a private party and a government agency wherein the private party agrees to provide goods or services in exchange for compensation, subject to specific regulatory requirements and oversight.

Private Contracts

Agreements made between private parties without governmental intervention, governed by the principles of contract law.

Freedom of Speech

The right to express one’s opinions publicly without governmental interference.

First Amendment

Part of the United States Constitution protecting freedoms concerning religion, expression, assembly, and the right to petition the government.