The Spot Price of the Market Index Is $900

question 25

Multiple Choice

The spot price of the market index is $900. After 3 months the market index is priced at $920. The annual rate of interest on treasuries is 4.8% (0.4% per month) . The premium on the long put, with an exercise price of $930, is $8.00. Calculate the profit or loss to the short put position if the final index price is $915.

• A) $15.00 gain
• B) $15.00 loss
• C) $6.90 gain
• D) $6.90 loss

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Definitions:

Blanket Lien

A type of lien that gives the creditor the rights to seize nearly all types of assets and property of the debtor in the event of default.

Trade Credit

A type of commercial financing where a buyer is allowed to purchase goods or services and pay the supplier at a later scheduled date.

Net Period

The time period within which a net payment is due after any discounts are applied.

Compensating Balance

A minimum balance that must be maintained in a bank account, usually as a condition for obtaining a loan or line of credit.