Question
1. CMC Ltd. shares are presently quoted at INR100.3-Months call option carries a premium of INR15 for a strike price of INR120, and 3-Months put
1. CMC Ltd. shares are presently quoted at INR100.3-Months call option carries a premium of INR15 for a strike price of INR120, and 3-Months put option carries a premium of INR20 for a strike price of INR120. If the spot price on the expiry date is in the range of INR90 to INR160, with intervals of INR5, prepare Net Pay-Off Graph for both Call Option and Put Option, from both the buyers perspective and the option writers perspective.
2. Prabir has INR60 Lakhs in hand. He is contemplating investment in the shares of Star Accessories Ltd (SAL) which is being traded at INR 200 per share. Prabir expects a dividend declaration of INR37 per share 3 months hence and a market price of INR185 per share at the end of the year, at which Prabir plans to sell of all his holdings. If the discount rate is 12% p.a., what will be the course of action if Prabir discounts his cash flows under continuous compounding approach and monthly discounting approach?
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