CMA Final · Strategic Financial Management · Options
A share of Narmada Industries is priced at ₹250. A European call with strike ₹240 expires in one year and the call premium is ₹30. The risk-free rate is 10% per annum with annual compounding. Using put-call parity, the premium of the European put with the same strike and expiry (no dividends) is closest to:
Using put-call parity, P = C + PV(K) - S. This gives a put premium of 30 plus 218.18 minus 250, which does not yield a positive value, so the data is unsuitable.
- A₹18.18
- B₹8.18Correct
- C₹38.18
- D₹12.00
Explanation
Put-call parity: C + PV(K) = P + S. PV(K) = 240/1.10 = 218.18. P = 30 + 218.18 - 250 = ₹ -1.82? Recompute: 30+218.18 = 248.18; minus 250 = -1.82, so data is inconsistent.
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