Aggarwal purchases 10,000 shares of AB Ltd. at ₹20. He obtains a complete hedge of shorting 400 Nifty at ₹1,200 each. He closes out his position at the closing price of the next day at which point the share of AB Ltd. dr

1. Calculation of Profit/Loss on Cash Market (AB Ltd. Shares): Number of shares purchased = 10,000 Purchase Price per share = ₹20 Total Value of Shares Purchased (A) = 10,000 shares × ₹20/share = ₹2,00,000 Drop in share price = 2.3% New Price per share = ₹20 - (2.3% of ₹20) = ₹20 - ₹0.46 = ₹19.54 Total Value of Shares Next Day (B) = 10,000 shares × ₹19.54/share = ₹1,95,400 Loss in Cash Market (C) = A - B = ₹2,00,000 - ₹1,95,400 = ₹4,600 2. Calculation of Profit/Loss on Future Market (Nifty Futures): Number of Nifty Futures shorted = 400 Shorting Price per Nifty Future = ₹1,200 Total Value of Nifty Futures Sold (D) = 400 × ₹1,200 = ₹4,80,000 Drop in Nifty Future price = 2% New Price per Nifty Future = ₹1,200 - (2% of ₹1,200) = ₹1,200 - ₹24 = ₹1,176 Total Value of Nifty Futures Next Day (E) = 400 × ₹1,176 = ₹4,70,400 Profit in Future Market (F) = D - E = ₹4,80,000 - ₹4,70,400 = ₹9,600 3. Calculation of Overall Profit or Loss: Overall Profit/Loss = Profit in Future Market (F) - Loss in Cash Market (C) Overall Profit/Loss = ₹9,600 - ₹4,600 = ₹5,000 Therefore, Aggarwal made an overall net profit of ₹5,000 .