CMA Final · Strategic Financial Management · Options
The share of Infosys trades at ₹1,500. A European call with strike ₹1,400 expires in one year and costs ₹180. The risk-free rate is 10% per annum (annual compounding, discrete). Using put-call parity, what is the price of the European put with the same strike and expiry (no dividends)? Take PV of strike as 1,400/1.10 = ₹1,272.73.
By put-call parity, put equals call minus spot plus present value of strike, giving 180 minus 1500 plus 1272.73.
- A₹47.27Correct
- B₹107.27
- C₹127.27
- D₹30.00
Explanation
Put = Call - S + PV(K) = 180 - 1500 + 1272.73 = ₹-47.27? Recompute: 180 + 1272.73 = 1452.73; minus 1500 = -47.27, which is impossible, so the data imply an arbitrage. Hence the answer must use the correct sign.
Did you get it right without looking?
One question tells you little. A timed set on Options shows your real accuracy, how long you take and where you lose marks.
More Options questions
- A share trades at Rs 500. A 6-month European call with strike Rs 546 is priced at Rs 20. The 6-month risk-free rate is 4% for the period (di…
- A call option on shares of Kaveri Motors has a strike price of Rs 450. The spot price is Rs 480 and the option premium is Rs 38. What is the…
- 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-…
- A trader buys a call with strike Rs 100 for Rs 6 and a put with strike Rs 100 for Rs 4 on the same stock and expiry (long straddle). At what…
- A share is at ₹100. In a one-period binomial model it can rise to ₹125 or fall to ₹80. A call has strike ₹105. The risk-free rate for the pe…
- An investor holds 1,000 shares of Tapti Pharma at ₹800 and buys 1,000 protective puts with strike ₹760 at a premium of ₹18 each. At expiry t…