Quiz Space

Corporate Finance · End Term · 22 Dec 2024 · September 2024 term · Set QDB3

Question 25: You purchase two one-year call options with a strike pri…

Question 25

+3 marksOne correct option

You purchase two one-year call options with a strike price of Rs 80 and a one-year put option with a strike price of Rs 80. The call premium is Rs 4, and the put premium is Rs 3. The current share price is Rs 78. If one year later, the share price increases to Rs 87

  1. A

    You make a profit of Rs 14.

  2. B

    You make a profit of Rs 3.

  3. C

    You incur a loss of Rs 3.

  4. D

    You incur a loss of Rs 11.

Show answer

Correct answer

  • B

    You make a profit of Rs 3.

See the whole paperTake it as a mock test

Question 25 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 present value of…
  2. Q2The delta of an option is the ratio of a change in the option price to the corresponding change in the stock price.
  3. Q3In the Black-Scholes pricing formula, stock prices are considered to be log-normally distributed.
  4. Q4A call option is in-the-money when the stock price is higher than the strike price.
  5. Q5Liabilities of a commercial bank include loans, deposits with other banks and the central bank, and various securities …
  6. Q6The part of the minimum-variance frontier that lies above the global minimum-variance portfolio is called the efficient…
  7. Q7According to CAPM, projects with higher beta require a lower 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 interest rates and maturity.
  10. Q10An investor can diversify the systematic risk.
  11. Q11You found an ancient painting in your home that was purchased by your father 20 years ago for Rs 1,000. You auction it …
  12. Q12The Tata Steel stock is trading at Rs 300 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 6% 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 s…
  15. Q15Sahitya Inc. is considering two different projects, A and B, for investment and can choose at most one project to inves…
  16. Q16A British Pound buys 100 Russian Rubles. The GDP deflator in Russia is 110, while the GDP deflator in the UK is 105. Wh…
  17. Q17The prevailing interest rate in India is 9%, and the prevailing interest rate in the UK is 5%. What is the expected rat…
  18. Q18The share price for Infosys is Rs 500 today. A trader invests in Infosys by buying 100 European call options on Infosys…
  19. Q19Which of the following describes a short position in an option?
  20. Q20Consider a put option and a call option with the same strike price and time to maturity. Which of the following is TRUE?
  21. Q21The price of a stock is Rs 84. A trader buys a put option on the stock with a strike price of Rs 80 when the option pri…
  22. Q22When volatility increases with all else remaining the same, which of the following is true?
  23. Q23When the strike price increases with all else remaining the same, which of the following is true?
  24. Q24Which of the following describes a protective put?
  25. Q26The price of a three-month European put option on a non-dividend-paying stock with a strike price of Rs 60 is Rs 6. The…
  26. Q27A stock is trading at Rs 100 today. In 3 months, the stock price can either increase to Rs 120 or decrease to Rs 90. Th…
  27. Q28Figure question
  28. Q29You invest 60% of your money in a security with a beta of 1.35 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 15%. 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 70 or…
  31. Q32A risky asset has a 10% 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 20 and a one-year put option with a strike price of Rs 20…
  33. Q34Suppose the risk-free rate is 4% and the expected market return is 9%. If the value of the beta of security A is 0.6 ac…
  34. Q35Security A has an expected return of 18% and a standard deviation of 20%. Security B has an expected return of 16% and …