A Replicating Portfolio for a Call Option Includes

question 51

Multiple Choice

A replicating portfolio for a call option includes .75 share of stock. The hedge ratio states that for each $1 decline in the stock price, the price of the call should

• A) decline by $.75.
• B) rise by $1.
• C) decline by S.25.
• D) rise by $.25.

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Definitions:

Passive Approach

The Passive Approach refers to an investment or management strategy where decisions are minimal and made with the intent of achieving average market returns.

Real GDP

Real Gross Domestic Product, which factors in inflation to evaluate the total value of goods and services produced by an economy in actual terms.

Expansionary Gap

A situation where the actual output of an economy exceeds the potential output, often leading to increased inflation.

Self-correction

The process by which market mechanisms adjust to eliminate economic imbalances, leading to the restoration of equilibrium without external intervention.