Suppose a portfolio consisting of the long position in the asset and the short position in the call option is riskless and will produce a return that equals the risk-free interest rate. A portfolio constructed in this way is called ________.

Question

Quizplus · Accepted Answer

A portfolio constructed in this way is called a hedged portfolio as it involves using the short position in the call option to offset the riskiness of the long position in the underlying asset. This results in a riskless portfolio that earns the risk-free interest rate. The other options are not appropriate descriptions for this type of portfolio.

Suppose a Portfolio Consisting of the Long Position in the Asset