a) Which of the following is not true about Dynamic Portfolio Insurance?

• Dynamic portfolio insurance was blamed for the 1987 Black Monday stock market crash.

• Dynamic portfolio insurance is based on the multi-period binomial option pricing model.

• Dynamic portfolio insurance involves trading options.

• Dynamic portfolio insurance is a strategy that generates payoffs similar to those of the protective put strategy.

• Dynamic portfolio insurance is a strategy that generates payoffs that are similar to purchasing a call option and risk-free Treasury bills.

b) Which of the following is(are) not rational investor behavior?

1. Investors who are more likely to sell current winners than current losers.

2. Investors who are more likely to focus on firms with high growth rate.

3. Investors who prefer a sure income of $5000 dollars than a bet that has an expected gain of $5000.

• 2

• 3

• 1

• 1, 2, and 3

• 1 and 2