You Would Like to Hold a Protective Put Position on the Stock

question 40

Multiple Choice

You would like to hold a protective put position on the stock of Avalon Corporation to lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50. Over the next year, the stock price will increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on Avalon Co.
What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X = $50?

• A) ½ share of stock and $25 in bills
• B) 1 share of stock and $50 in bills
• C) ½ share of stock and $26.19 in bills
• D) 1 share of stock and $25 in bills

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Definitions:

Cultural Imperialism

The dominance of one culture over others, often as a result of colonization or economic influence, leading to the imposition of the dominant culture's values and practices.

Disneyfication

The process by which commercialized elements reshape and homogenize cultural and urban landscapes, making them resemble the sanitized, entertainment-focused environments of Disney theme parks.

Coca-colonization

The term used to describe the globalization of American culture pushed through popular American products, notably Coca-Cola, and its impact on the cultural diets and practices of other nations.

Neoliberalism

An economic philosophy that argues for the sovereignty of the free market without any government intervention. The sole responsibility of a company is to make a profit for its shareholders. To maximize the social good, the model of the market must be extended to all realms of society.