An investor purchases a long call at a price of $2.50. The expiration price is $35.00. If the current share price is $35.10, what is the break-even point for the investor?
A)$32.50
B)$35.00
C)$37.50
D)$37.60

Question

Quizplus · Accepted Answer

The break-even point for a long call option is the strike price plus the premium paid for the option. In this case, the strike price is not given, but we can calculate it by subtracting the premium from the expiration price: $35.00 - $2.50 = $32.50. Therefore, the break-even point is $32.50 + $2.50 = $35.00. Since the current share price is above the break-even point, the investor is already making a profit. However, if we want to find the break-even point in terms of the current share price, we can calculate it by adding the premium to the current share price: $35.10 + $2.50 = $37.60. Therefore, if the share price remains above $37.60 at expiration, the investor will make a profit, and if it falls below $37.60, the investor will incur a loss. However, this information is not needed to answer the question, as the question only asks for the break-even point, which is $35.00.

An Investor Purchases a Long Call at a Price of $2.50