If you buy a European call option on Canada bonds with a strike price of 110 assuming that the premium is $0, and on the maturity date the market price of Canada bonds is 103, you will ________ the option and potentially make a profit of $________.
A) not exercise; 7000
B) not exercise; 7
C) exercise; 7000
D) exercise; 7

Question

Quizplus · Accepted Answer

Since the market price of Canada bonds is below the strike price of 110, it would not be profitable to exercise the option. Therefore, the best choice would be not to exercise the option. Since the premium paid for the option is $0, there would be no profit or loss.

If You Buy a European Call Option on Canada Bonds