The share of Zee telefilms is currently selling at Rs 100 it is known that the share price will either turned to Rs 108 or Rs 90 Rf=12% P.A.if you intend to buy 3 month call option with an exercise price of Rs 97 .how much one should pay for buying the option today.Solve by binomial model.
Answers
Answer:
Acid Test Ratio
It is a calculation to know whether a company will have sufficient short term assets in order to cover the liabilities. The acid test ratio can also be referred to as quick ratio, working capital ratio, and current ratio.
Formula
The acid test ratio is calculated by adding the accounts receivables, cash, and short term investments, and dividing the result by the current liabilities.
Evaluation of acid test ratio
• When a company has an acid test ratio lesser than 1 : In this situation, the company will have lesser liquid assets to cover their current liabilities. This situation should be considered as caution.
• When a company has acid test ratio lesser than current ratio: In this situation, the company will rely more on current assets than on the inventories.
Several industries prefer the acid test ratio to exceed 1. Then, there could also be a situation where high acid test ratio is not always absolutely good. It can signify that cash becomes idle when it is accumulated in excess, rather than utilizing the money for best purposes such as, returning to the shareholders, using it for production purpose, or investing again for company expansion.