You Can Buy a $100 Share That Will Be Worth

question 28

Multiple Choice

You can buy a $100 share that will be worth either $120 or $70 in one year, a $100 bond that will be worth $107 in one year, or a call option for the stock for $10. Developing a replicating portfolio with the BOPM, the proportion of the portfolio in the stock should be

• A) 40%.
• B) 20%.
• C) 60%.
• D) 100%.

---

Definitions:

Open Market

A freely competitive market where buyers and sellers can trade goods, services, and securities without excessive regulations, often facilitating price determination through supply and demand.

Money Supply

The total volume of money available in the economy, including cash, coins, and balances held in bank accounts.

Reserve Requirements

Reserve Requirements are regulations set by central banks determining the minimum amount of reserves that banks must hold against deposits, used as a tool of monetary policy.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from the central bank's discount window.