Question
Are the following statements True, False or Uncertain? Provide a short justification for your answer. a. If a portfolio has a beta of 1.0 (p
Are the following statements True, False or Uncertain? Provide a short justification for your answer.
a. If a portfolio has a beta of 1.0 (p = 1.0), then it must be perfectly correlated with the market. (5 marks)
b. The price of ABC stock is currently $1 per share and you hold an in-the-money American put option on ABC stock. The options will expire in one-year, but you would like to get out of your option position now. Because ABC is not expected to pay a dividend over the next year you would sell the option instead of exercising it. (5 marks)
c. The sales of retailing firms, such as department stores, are very seasonal. For example, a very large fraction of sales occur in November and December. Because of this we expect that the returns on the common stock of these firms will be high in November and December and low in January and February. (5 marks)
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