CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

Suppose an investor buys one share of stock and a put option on the stock. What will be the value of her investment on the final exercise date if the stock price is below the exercise price?

A. The value of one share of stock minus the exercise price
B. The value of one share of stock plus the exercise price
C. The exercise price
Correct Answer: C

User Contributed Comments 8

User Comment
Alastair [share price] + [exercise price - share price] = exercise price
katybo So + po = So + (K-So) = K
danlan2 It's asking value of the investment and not the profit of the investment.
epizi This is about protective call. Simply by reason that the value of the option is the higher of either the stock or the exercise price, which ever.

If it was the call option the concept of fiduciary call would have applied and the value would have been the stock.
mchu Protective Put
gill15 The stock is worth St regardless of if the EP goes up or down
The Put is worth X - St
add the two and you get X
bbadger Not in here, but really it's the exercise price - the put cost
Inaganti6 This is protective put I think. No where does a call come into the picture at all you're securing the bottom/floor not capping the upside (which a short call) does.
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