Quiz Space

Corporate Finance · End Term · 22 Dec 2024 · September 2024 term · Set QDB1

Question 20: Consider a put option and a call option with the same st…

Question 20

+3 marksOne correct option

Consider a put option and a call option with the same strike price and time to maturity. Which of the following is FALSE?

  1. A

    If the put option is in the money, the call option will be out of the money.

  2. B

    If the call option is in the money, the put option will be out of the money.

  3. C

    If the call option is at the money, the put option will be out of the money.

  4. D

    If the put option is at the money, the call option will also be at the money.

Show answer

Correct answer

  • C

    If the call option is at the money, the put option will be out of the money.

See the whole paperTake it as a mock test

Question 20 of 35 in the IIT Madras BS Corporate Finance (Corporate Finance) End Term paper sat on 22 Dec 2024, in the September 2024 term (IIT M DEGREE AN EXAM QDB3 22 Dec 2024). It carries 3 marks.

More questions from this paper

  1. Q1The put-call parity result for a non-dividend-paying stock states that the European put price plus the stock price must…
  2. Q2The delta of an option is the ratio of the option price to the stock price.
  3. Q3In the Black-Scholes pricing formula, stock prices are considered to be log-normally distributed.
  4. Q4A put option is in-the-money when the stock price is higher than the strike price.
  5. Q5Assets of a commercial bank include loans, deposits with other banks and the central bank, and various securities that …
  6. Q6The part of the minimum-variance frontier that lies below the global minimum-variance portfolio is called the efficient…
  7. Q7According to CAPM, projects with higher beta require a higher expected rate of return.
  8. Q8When assets have a perfect positive correlation, there are no benefits from diversification.
  9. Q9The yield curve shows the relation between expected return and standard deviation.
  10. Q10An investor cannot diversify the systematic risk.
  11. Q11You found an ancient clay pot in your home that was purchased by your father 25 years ago for Rs 1,000. You auction it …
  12. Q12The Tata Steel stock is trading at Rs 500 today. Tata Steel is expected to pay a dividend of Rs 20 per share next year.…
  13. Q13There are two assets: a risk-free asset that offers a 7% rate of return and a risky asset that has an expected rate of …
  14. Q14There are two risky assets that are negatively correlated with ρ= -0.5. Asset 1 has an expected return of 15% and a sta…
  15. Q15Sloka Inc. is considering two different projects, A and B, for investment and can choose at most one project to invest …
  16. Q16A US Dollar buys 80 Russian Rubles. The GDP deflator in Russia is 110, while the GDP deflator in the US is 105. What is…
  17. Q17The prevailing interest rate in India is 8%, and the prevailing interest rate in the UK is 4%. What is the expected rat…
  18. Q18A trader invests in XYZ Inc. by buying 100 shares in June for Rs 50 per share. She also buys 100 European put options f…
  19. Q19Which of the following describes a long position in an option?
  20. Q21The price of a stock is Rs 54. A trader buys a call option on the stock with a strike price of Rs 58 when the option pr…
  21. Q22When the stock price increases with all else remaining the same, which of the following is true?
  22. Q23When interest rates increase with all else remaining the same, which of the following is true?
  23. Q24Which of the following describes a covered call?
  24. Q25You purchase a one-year call option with a strike price of Rs 50 and two one-year put options with a strike price of Rs…
  25. Q26The price of a three-month European call option on a non-dividend-paying stock with a strike price of Rs 80 is Rs 8. Th…
  26. Q27A stock is trading at Rs 50 today. In 3 months, the stock price can either increase to Rs 60 or decrease to Rs 40. The …
  27. Q28Figure question
  28. Q29You invest 80% of your money in a security with a beta of 1.45 and the rest of your money in risk- free security. The b…
  29. Q30Your opinion is that Cipla stock has an expected rate of return of 16%. Cipla has a beta of 1.5. The risk-free rate of …
  30. Q31The current price of a non-dividend-paying stock is Rs 50. Over the next six months, it is expected to rise to Rs 65 or…
  31. Q32A risky asset has a 12% expected rate of return and a 20% standard deviation of the rate of return. If the Sharpe ratio…
  32. Q33You purchase a one-year call option with a strike price of Rs 40 and a one-year put option with a strike price of Rs 40…
  33. Q34Suppose the risk-free rate is 2% and the expected market return is 7%. If the value of the beta of security A is 1.2 ac…
  34. Q35Security X has an expected return of 18% and a standard deviation of 25%. Security Y has an expected return of 16% and …