Question

11.3   Chapter 11 discusses a number of ways of reducing risk, specifically hedging, insuring, and diversifying. In the table below, place an X in the cell that reflects the technique used to reduce risk in each scenario.       

		Hedging	Insuring	Diversi-fication
1	Place an advance order with Amazon.ca, who agrees to charge you the lower of the advance price and the listed price at the time your order is filled.
2	Purchase a call option on a stock you think may increase in price.
3	Sell 200 shares of IBM stock and buy a mutual fund that holds the same stocks as the S&P index.
4	Sell a debt owed to you for $0.50 per dollar owed.
5	Agree to a long-term contract with a supplier at a fixed price.
6	Agree to a no-trade clause with the sports team that employs you.
7	Buy a put option on your Dell Inc. shares because you are worried that Michael Dell might retire again, causing the share price to go down.
8	Pay a clown six months before your child's birthday to perform at his birthday party.

Answer 1