You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of $1.64. The option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $1.65, your net profit per unit is:
A)-$.03.
B) -$.02.
C) -$.01.
D) $.02.
E) None of these are correct.

Question

Quizplus · Accepted Answer

To calculate the net profit per unit, we need to consider the difference between the spot rate and the exercise price, as well as the premium paid for the option.

The difference between the spot rate of $1.65 and the exercise price of $1.64 is $0.01.

Since we paid a premium of $0.03 per unit, our net profit is $0.01 - $0.03 = -$0.02 per unit.

However, since the option was not exercised, this loss is not realized and our net profit per unit is $0.02, which is answer B.

You Purchase a Call Option on Pounds for a Premium