A Portfolio That Combines the Underlying Stock and a Short

question 20

Multiple Choice

A portfolio that combines the underlying stock and a short position in an option is called

• A)a risk arbitrage portfolio
• B)a hedge portfolio
• C)a ratio portfolio
• D)a two-state portfolio
• E)none of the above

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Definitions:

Marginal Revenue

The heightened revenue from selling an additional unit of a product or service.

Perfectly Competitive Firm

A theoretical concept describing a company that operates in a market where no single producer or consumer has the market power to influence prices.

ATC

Average total cost (ATC) is the total cost of production divided by the quantity of output produced, representing the cost per unit of output.

Marginal Cost

The supplementary expense involved in creating an additional unit of a product or service.