In a portfolio insurance strategy, when stock prices drop, the portfolio is rebalanced by
A) Buying stock and investing at the risk-free rate.
B) Buying stock and borrowing at the risk-free rate.
C) Selling stock and investing at the risk-free rate.
D) Selling stock and borrowing at the risk-free rate.

Question

Quizplus · Accepted Answer

In a portfolio insurance strategy, when stock prices drop, the strategy involves selling stock to reduce exposure to further losses and investing the proceeds at the risk-free rate to preserve capital. This helps in maintaining a certain minimum portfolio value.

In a Portfolio Insurance Strategy, When Stock Prices Drop, the Portfolio