Question

The premium on a pound put option is $0.03 per unit. The exercise price is $1.60. The break-even point is ____ for the buyer of the put, and ____ for the seller of the put. (Assume zero transactions costs and that the buyer and seller of the put option are speculators.) Group of answer choices $1.57; $1.57 $1.63; $1.63 $1.63; $1.60 $1.63; $1.57

Answer 1

Buyer $1.57

Seller $1.57

Step-by-step explanation:

Based on the information given The break-even point is $1.57 for the buyer of the put, and $1.57 for the seller of the put calculated using this formula

Break-even point=Exercise price-Premium on a pound put option

Let plug in the formula

Break-even point=$1.60 − $.03

Break-even point= $1.57

Therefore The break-even point is $1.57 for the buyer of the put, and $1.57 for the seller of the put.