You are bullish on company ABC and company XYZ, both of which are expected to pay dividends. Suppose you have $2 million to invest.You consider 4 different investment strategies in the form of portfolios:Portfolio A- Buy $1 million of ABC stock using cash.- Buy $1 million of XYZ stocks using cash.Portfolio B- Buy $2 million of ABC stock using $1 million and borrowing $1 million.- Buy $2 million of XYZ stock using $1 million and borrowing $1 million.Portfolio C- Buy call options on ABC stock expiring in one month, with strike $5 higher than ABC’s stock price. The cost of all these ABC options is not more than $500,000.- Buy call options on XYZ expiring in one month, with strike $5 higher than XYZ’s stock price.- The cost of all these XYZ options is not more than $500,000.Portfolio D- Sell put options on ABC expiring in 1 month, with strike $5 lower than ABC’s stock price.- Sell put options on XYZ expiring in 1 month, with strike $5 lower than XYZ’s stock price.Question 4Which portfolio(s) is (are) the least time-sensitive? State at least 2 reasons WHY you selected one or more securities OR why you did NOT select the other one/ones.

Portfolio A and B are the least time-sensitive. Here are the reasons:

1. No Expiration Date: Unlike options (in Portfolio C and D), stocks do not have an expiration date. This means that you can hold onto the stocks for as long as you want, waiting for the right time to sell. This is not the case with options, which expire at a certain date. If the price of the underlying stock does not move in the direction you predicted by the expiration date, the option becomes worthless.

2. Dividends: Both ABC and XYZ are expected to pay dividends. When you own stocks, you are entitled to receive any dividends paid by the company. This is not the case with options. Even if the company pays a dividend, as an option holder, you are not entitled to it. This means that even if the stock price does not increase, you can still make money from the dividends, making it less time-sensitive.

Portfolio B involves borrowing, which introduces additional risk and costs (interest payments), but it doesn't make the portfolio more time-sensitive than Portfolio A. The time-sensitivity in Portfolio B is the same as in Portfolio A because they both involve owning stocks.

On the other hand, Portfolio C and D involve options which are time-sensitive due to their expiration dates. If the stock prices do not move as expected before the options expire, the options could expire worthless. Therefore, these portfolios are more time-sensitive.

Portfolio A and B are the least time-sensitive. Here are the reasons:

1. No Expiration Date: Unlike options (in Portfolio C and D), stocks do not have an expiration date. This means that you can hold onto the stocks for as long as you want, waiting for the right time to sell. This makes these portfolios less time-sensitive.

2. Dividends: Both ABC and XYZ are expected to pay dividends. This means that even if the stock price does not increase, you can still earn income from the dividends. This is not the case with options, which do not pay dividends.

On the other hand, Portfolios C and D involve options which are inherently time-sensitive because they have an expiration date. If the stock price does not move in the direction you want before the option expires, you could lose your entire investment. In addition, options do not pay dividends, so you do not earn any income while you hold them.