You Purchase a Stock for $53 and Simultaneously Buy a Put

question 34

Multiple Choice

You purchase a stock for $53 and simultaneously buy a put option on the stock with a strike price of $60 for $8.50. Just prior to expiration, the stock is selling for $62.50. What is your gain
Or loss on your position?

• A)$1.50 loss
• B)$18.00 gain
• C)$1.00 gain
• D)$9.50 gain

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Definitions:

Financial Basis

Refers to the underlying support or foundation for an economic claim or accounting method, often related to how financial statements are prepared.

Cash Basis

An accounting method in which revenues and expenses are recorded only when cash is received or paid out.

Zero NPV

A situation where the net present value of a project or investment equals zero, indicating that the expected cash flows exactly discount the initial investment, resulting in no net gain or loss.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period.