CIMA Exam CIMAPRA19-F03-1 Topic 6 Question 91 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam

Question #: 91
Topic #: 6

G purchased a put option that grants the right to cap the interest on a loan at 10.0%. Simultaneously, G sold a call option that grants the holder the benefits of any decrease if interest rates fall below 8.5%.

Which THREE possible s would be consistent with G's behavior?

AG is willing to risk the loss of savings from a fall in interest rates if that offsets the cost of limiting the cost of rises.

BG's strategy is to ensure that its interest rates lie between 8.5% and 10.0%.

CG is concerned that interest rates may rise above 10.0%.

DG is concerned that interest rates may rise above 8.5%.

EG is concerned that interest rates may fall below 10%.

Show Suggested Answer

Suggested Answer: A, B, C

by Celeste at Jul 08, 2024, 09:30 PM

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Leonor

4 months ago

I'll go with A, C, and E. Gotta love these questions that test your understanding of basic options strategies. It's not rocket science, folks.

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Buffy

3 months ago

C) G is concerned that interest rates may rise above 10.0%.

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Cassandra

4 months ago

A) G is willing to risk the loss of savings from a fall in interest rates if that offsets the cost of limiting the cost of rises.

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Leonora

4 months ago

Haha, G must be a real risk-taker. Selling a call option on top of buying a put? Sounds like a recipe for either big profits or big losses. No in-between!

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Blythe

3 months ago

D) G is concerned that interest rates may rise above 8.5%.

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Dell

3 months ago

B) G's strategy is to ensure that its interest rates lie between 8.5% and 10.0%.

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Alesia

3 months ago

A) G is willing to risk the loss of savings from a fall in interest rates if that offsets the cost of limiting the cost of rises.

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Stevie

4 months ago

B is just silly. What kind of strategy is that? Trying to keep rates between 8.5% and 10%? Where's the upside in that?

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Von

4 months ago

D) G is concerned that interest rates may rise above 8.5%.

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Susy

4 months ago

C) G is concerned that interest rates may rise above 10.0%.

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Marjory

4 months ago

A) G is willing to risk the loss of savings from a fall in interest rates if that offsets the cost of limiting the cost of rises.

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Adria

5 months ago

But G also sold a call option to benefit from a decrease in interest rates.

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Daren

5 months ago

I agree, that's why G purchased the put option.

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Georgeanna

5 months ago

I think G is trying to limit the cost of rises.

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Roxane

5 months ago

A, C, and E seem like the logical choices here. G is clearly trying to hedge against interest rate rises while still benefiting from decreases. Simple stuff really.

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