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      Question

      ABC buys an option for which the exercise price is Rs.

      100 and the option premium is Rs. 5. What is the breakeven price? 
      A Rs. 105 Correct Answer Incorrect Answer
      B Rs. 95 Correct Answer Incorrect Answer
      C Rs. 105 if it is a call Correct Answer Incorrect Answer
      D Rs. 95 if it is a call Correct Answer Incorrect Answer
      E Rs. 100 Correct Answer Incorrect Answer

      Solution

      The breakeven price depends on whether the option is a call option or a put option. For a call option, the breakeven price is Rs. 105, and for a put option, the breakeven price is Rs. 95.  If ABC bought a Call Option, the formula is:  Break-even= Strike Price+ Premium Break-even= 100+5                   = 105

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