SIE practice questioneasyOptions — Breakeven Calculation
An investor purchases 1 XYZ Jan 30 call at $2.50. What is the breakeven point?
- A$27.50
- B$30.00
- C$35.00
- D$32.50✓ Correct answer
Explanation
Why D — $32.50
Breakeven for a long call = strike price + premium paid = $30 + $2.50 = $32.50. At this price, the intrinsic value of the call ($32.50 - $30 = $2.50) exactly equals the premium paid, resulting in neither profit nor loss. Above $32.50, the investor profits; below $32.50, the investor has a loss (maximum loss is the $250 premium if stock stays at/below $30).
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