Suppose that you buy a call option on a $100,000 Canada bond futures contract with...
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Finance
Suppose that you buy a call option on a $100,000 Canada bond futures contract with an exercise price of 110 for a premium of $1500. If on expiration the futures contract has a price of 111, what is your profit or loss on the contract?
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Value of the bond futures contract = $100,000 Exercise Price = 110 Premium paid = $1500 Price of the futures contract at expiration = 111 Since exercise price is less than the price of the futures contract at expiration, the call option will be exercised. Payoff from the call option = Value of bond futures contracts * ( Price at Expiration - Exercise Price) = $100,000 * (111 -110)% = $1,000 Profit (Loss) on the contract = Payoff from the call option - Premium Paid = 1000 -1500 = - $500 Thus, the loss on the contract was $500.
My question is WHY is there a % behind the (111-110) in the solution??? Rationally I understand it, but mathematically I am not sure where in came from in the formula. Please explain.
Risk Management with Financial Derivatives, Economics of Banking, Money and Financial Markets
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