An investor is bearish on a particular stock and decided to buy a put with a strike price of $25.Ignoring commissions,if the option was purchased for a price of $0.85,what is the break even point for the investor?
A) $24.15
B) $25.00
C) $25.87
D) $27.86

Question

Quizplus · Accepted Answer

To calculate the breakeven point, we need to consider the total cost incurred by the investor, which includes the cost of buying the put option and the strike price of the option. The total cost can be calculated as follows:

Total cost = Strike price - Premium paid
Total cost = $25 - $0.85
Total cost = $24.15

Therefore, the breakeven point for the investor is $24.15. If the stock price drops below this level, the investor will start making a profit from the put option.

An Investor Is Bearish on a Particular Stock and Decided