CMA Final · Strategic Financial Management · Options
A European put option on shares of Kaveri Motors has a strike price of ₹480. At expiry the share trades at ₹455. The put was bought for a premium of ₹14. What is the net profit per share to the put buyer, ignoring transaction costs?
The put buyer earns ₹11 per share. The put is worth 480 − 455 = ₹25 at expiry, and after subtracting the ₹14 premium paid, the net gain is ₹11. Ignoring the premium would overstate profit at ₹25.
- A₹11Correct
- B₹25
- C₹39
- D₹(14)
Explanation
Intrinsic value at expiry = 480 − 455 = ₹25. Net profit = 25 − premium 14 = ₹11. Option ₹25 ignores the premium paid; ₹39 wrongly adds the premium instead of deducting it.
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