You Hold a Portfolio of a Long Position in a Call

question 12

Multiple Choice

You hold a portfolio of a long position in a call and a long position in a put, both for the same strike and maturity. Which of the following statements is true?

• A) When the stock price increases, the rho of the portfolio increases if and only if the call is in-the-money.
• B) When the stock price increases, the rho of the portfolio decreases if and only if the call is out-of-the-money.
• C) When the stock price increases, the rho of the portfolio increases whether or not the call is in-the-money.
• D) When the stock price increases, the rho of the portfolio may increase, decrease or stay constant depending on volatility and depth-in-the-money.

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Definitions:

Revenue

The total income generated by a company from its business activities, such as sales of goods and services, before any expenses are deducted.

Cash Coverage Ratio

A measure of a company's ability to pay its debt obligations using its operating cash flow.

Quick Ratio

The Quick Ratio, also known as the acid-test ratio, measures a company's ability to meet its short-term obligations with its most liquid assets, excluding inventory.