Consider the graph of a call option shown at right. The option is a three-month American call option on €62,500 with a strike price of $1.50 = €1.00 and an option premium of $3,125. What are the values of A, B, and C, respectively?
A)A = -$3,125 (or -$.05 depending on your scale); B = $1.50; C = $1.55
B)A = -€3,750 (or -€.06 depending on your scale); B = $1.50; C = $1.55
C)A = -$.05; B = $1.55; C = $1.60
D)none of the above

Question

Consider the graph of a call option shown at right. The option is a three-month American call option on €62,500 with a strike price of $1.50 = €1.00 and an option premium of $3,125. What are the values of A, B, and C, respectively? 
A)A = -$3,125 (or -$.05 depending on your scale); B = $1.50; C = $1.55 
B)A = -€3,750 (or -€.06 depending on your scale); B = $1.50; C = $1.55 
C)A = -$.05; B = $1.55; C = $1.60 
D)none of the above

Quizplus · Accepted Answer

A is the option premium, which is given as $3,125.
B is the strike price, which is given as $1.50 = €1.00.
C is the breakeven price, which can be found by adding the strike price (B) to the option premium (A) and dividing by the exchange rate: 
C = (A + B) / €1.00 = ($3,125 + $1.50) / €1.00 = $3,126.50 / €1.00 = $1.568 = $1.55 (rounded to the nearest cent). Therefore, the correct answer is A.

Consider the Graph of a Call Option Shown at Right