The value of a derivative security _______.

The correct answer is: A. depends on the value of the related primitive security.

A derivative security is a financial instrument whose value is derived from the value of an underlying asset. The underlying asset can be a stock, bond, commodity, or currency. The value of a derivative security will change in response to changes in the value of the underlying asset. For example, if the price of a stock goes up, the value of a call option on that stock will also go up.

Derivative securities are often used to hedge risk or to speculate on the future price of an asset. For example, a farmer might use a futures contract to hedge against the risk of a decline in the price of corn. A speculator might buy a call option on a stock if they believe that the price of the stock is going to go up.

Derivative securities can be complex and risky, and it is important to understand the risks before investing in them.

Here is a brief explanation of each option:

• Option A: The value of a derivative security depends on the value of the related primitive security. This is because the value of a derivative security is derived from the value of the underlying asset. For example, if the price of a stock goes up, the value of a call option on that stock will also go up.
• Option B: A derivative security can only cause increased risk. This is not always the case. Derivative securities can be used to hedge risk or to speculate on the future price of an asset. However, if a derivative security is not used properly, it can increase risk.
• Option C: The value of a derivative security is unrelated to the value of the related primitive security. This is not true. The value of a derivative security is derived from the value of the underlying asset. Therefore, the value of a derivative security will change in response to changes in the value of the underlying asset.
• Option D: A derivative security is worthless today. This is not true. Derivative securities can be valuable, but they can also be risky. It is important to understand the risks before investing in them.