Lew Paid $300 to Purchase a Call on XYZ with a Strike

question 53

Multiple Choice

Lew paid $300 to purchase a call on XYZ with a strike price of $25. What does the market price of XYZ have to be for Lew to break- even on his option investment? Ignore transaction costs and taxes.

• A) $22.
• B) $28.
• C) $25.
• D) Cannot be determined from the information provided.

---

Definitions:

Derivative Securities

Instruments in financial markets that derive their value from an underlying asset, index or financial benchmark, designed for risk management and speculative purposes.

Nikkei Stock Index

A stock market index for the Tokyo Stock Exchange, representing the performance of leading companies in Japan.

FTSE

The Financial Times Stock Exchange Group, a company that specializes in index calculation. Often referenced with its indices such as the FTSE 100.

EAFE

An acronym for Europe, Australasia, and Far East, representing a stock index that measures the equity market performance outside the U.S. and Canada.