Chapter 20 Questions 1 & 3

1. We said that options can be used either to scale up or reduce overall portfolio risk. What are some examples of risk-increasing and risk-reducing options strategies? Explain each.

3. What are the trade-offs facing an investor who is considering writing a call option on an existing portfolio?

Chapter 21 Questions 4 & 5

4. All else equal, is a call option on a stock with a lot of firm-specific risk worth more than one on a stock with little firm-specific risk? The betas of the two stocks are equal.

5. All else equal, will a call option with a high exercise price have a higher or lower hedge ratio than one with a low exercise price?

Chapter 22 Questions 2 & 5

2. Why might individuals purchase futures contracts rather than the underlying asset?

5. What is the difference between the futures price and the value of the futures contract?

Chapter 24 Questions 2 & 4

2. Is it possible for a positive alpha to be associated with inferior performance? Explain.

4. We have seen that market timing has tremendous potential value. Would it therefore be wise to shift resources to timing at the expense of security selection?

Chapter25Questions1AND2

1. Do you agree with the following claim? "U.S. companies with global operations can give you international diversification." Think about both business risk and foreign exchange risk.

2. In Figure 25.2, we provide stock market returns in both local and dollar-denominated terms. Which of these is more relevant? What does this have to do with whether the foreign exchange risk of an investment has been hedged?

Text book used:

Investments - 12th Edition By: Zvi Bodie, Alex Kane, and Alan Marcus ISBN10: 1260013839 ISBN13: 9781260013832