In a Portfolio Insurance Strategy, When Stock Prices Drop, the Portfolio

question 9

Multiple Choice

In a portfolio insurance strategy, when stock prices drop, the portfolio is rebalanced by

• A) Buying stock and investing at the risk-free rate.
• B) Buying stock and borrowing at the risk-free rate.
• C) Selling stock and investing at the risk-free rate.
• D) Selling stock and borrowing at the risk-free rate.

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Definitions:

Low-Cost Financing

Financing obtained at a lower interest rate than the market rate, often through government subsidies or special programs.

Adjusted Subsidiary Value

An evaluation metric that adjusts the value of a subsidiary’s assets and liabilities to their fair market value.

Investment Account

An account held at a financial institution into which individuals deposit funds for the purpose of buying securities and other investment assets.

New Shares

Additional shares of stock issued by a company to raise capital or in connection with a stock split.