Which of the following statements about portfolio insurance is true?
A) Only one method is available to insure a portfolio.
B) It seeks to provide a maximum return offering the opportunity to participate in rising prices.
C) Futures are used to hedge stock portfolios.
D) Portfolio insurance opens up the potential of unlimited losses.

Question

Quizplus · Accepted Answer

Portfolio insurance often involves using derivatives such as futures to hedge against market downturns, thereby protecting the value of a stock portfolio. This method does not guarantee maximum returns or participation in rising prices, nor does it inherently involve unlimited losses. Multiple methods, not just one, can be used for portfolio insurance.

Which of the Following Statements About Portfolio Insurance Is True