CIMA Exam CIMAPRA19-F03-1 Topic 4 Question 83 Discussion

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

Question #: 83
Topic #: 4

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 Mattie at Apr 08, 2024, 04:54 AM

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Rima

10 days ago

Haha, G is playing both sides of the fence here. Gotta love that kind of financial gymnastics!

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Reita

12 days ago

Yeah, I agree with C and E for sure. G is concerned about rates rising above 10%. But I'm not sure about B - does that mean G is trying to keep rates in a specific range?

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Katheryn

13 days ago

Okay, let me break this down. G bought a put option to limit their exposure to rising rates, and sold a call option to benefit from falling rates. I think the answer is B, C, and E.

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Ciara

14 days ago

Ha, G must be a savvy investor. Capping the upside and keeping the downside potential - smart move!

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Tamala

16 days ago

Hmm, I see what they're getting at. G is trying to protect against interest rates rising above 10%, but also wants to benefit if they fall below 8.5%. Interesting strategy!

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Jules

18 days ago

This question is tricky! It's testing our understanding of interest rate options and the behavior of the person who purchased and sold them. I'm going to have to think this through carefully.

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