3.

12 Options payoffs 47

Q: A stock currently sells at 120. The put option to sell the stock sells at Rs.134 costs Rs.18.
The time value of the option is .

1. Rs.18 3. Rs.14

2. Rs.4 4. Rs.12

A: The correct answer is number 2.

Q: An in-the-money option contract would generate upon exercise for the buyers.

1. positive cash flow 3. no cash flow

2. pre-determined amount of cash flow 4. negative cash flow

A: The correct answer is number 1.

Q: A put option gives the the right but not the obligation to the underlying
asset at a specified price.

1. seller, buy 3. owner, buy

2. seller, sell 4. owner, sell

A: The correct answer is number 4.

Q: By buying index futures one can make .

1. unlimited profits or loss since 3. limited profits or losses

market may go up or down

2. limited profit but unlimited losses 4. unlimited profit but limited loss
48 Introduction to futures and options

A: The correct answer is number 1.

Q: An index put option at a strike of Rs. 1176 is selling at a premium of Rs. 36. At what
index level will it break even for the buyer of the option ?

1. Rs. 1,870 3. Rs. 1,212

2. Rs. 1,140 4. Rs. 1,940

A: The correct answer is number 2.