Question

What is the gain or loss from purchasing a call option on $100,000 face value Treasury bonds with a strike price of $90,000 (90 points) and a premium of 1.5 points ($1,500) with an expiration date at the end of July if the end-of-July selling prices for the bonds is $80,000

Answer 1

Profit of $8,500

Step-by-step explanation:

Strike Price = $90,000

Premium = $1500

When Break even point = Strike price - premium

Break even point = $90,000 - $1,500

Break even point = $88,500

Hence, Profit = Break even point - Share price

Profit = $88,500 - $80,000

Profit = $8,500