A Strategy Consists of Buying a Market Index Product at $830

question 14

Multiple Choice

A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830.If the put premium is $18.00 and interest rates are 0.5% per month,compute the profit or loss from the long index position by itself expiration (in 6 months) if the market index is $810.

• A) $45.21 loss
• B) $21.22 loss
• C) $18.00 gain
• D) $24.25 gain

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating its operational liquidity.

Straight-Line Depreciation

A strategy for allocating the outlay of a tangible asset through its service duration in equivalent yearly installments.

Straight-Line Depreciation

An accounting method that evenly spreads the expense of an asset over its expected lifespan.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of maximizing shareholder value.