Which of the following is a reason for hedging a portfolio with an index futures?

A. The investor believes the stocks in the portfolio will perform better than the market but is uncertain about the future performance of the market
B. The investor believes the stocks in the portfolio will perform better than the market and the market is expected to do well
C. The portfolio is not well diversified and so its return is uncertain
D. All of the above

A

Index futures can be used to remove the impact of the performance of the overall market on the portfolio. If the market is expected to do well hedging against the performance of the market is not appropriate. Hedging cannot correct for a poorly diversified portfolio.

Business

You might also like to view...

Dalma, Theo, and Lavinia operated a courier service in partnership. One day while on a delivery, Dalma's truck mounted the curb and drove over the foot of a pedestrian standing on the sidewalk. Dalma was unaware of the accident and drove off

The next day, having looked up the partnership's phone number from the name of the side of the truck, Sanjay, the injured pedestrian, telephoned and advised Theo that he had been injured by one of the partnership's delivery trucks the day before. Theo truthfully responded that he had not heard a report of any accident and hung up the phone. Which of the following is TRUE? A) Theo is not liable for Sanjay's injuries as he was unaware of the accident B) The partnership and each of Dalma, Theo and Lavinia are liable. C) Only Dalma is liable for Sanjay's injuries D) Only Dalma and Lavinia are liable for Sanjay's injuries. E) The insurance company for the partnership is the only party that will be held liable

Business

Real time location tracking of vehicles relies on

A) citizen band radios. B) vehicles. C) teamsters. D) global positioning systems.

Business