Series 7 practice questionmediumOptions — Breakeven Calculations
An investor buys 1 DEF Apr 70 call at $5. What is the breakeven point?
- A$65
- B$70
- C$75✓ Correct answer
- D$80
Explanation
Why C — $75
The breakeven point for a long call is the strike price plus the premium paid: $70 + $5 = $75. At this price, the $5 intrinsic value exactly offsets the $5 premium paid. Above $75, the investor profits; below $75, the investor has a loss (limited to the $5 premium).
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