A buys a call with strike price 30. Spot price is 35. How much is the credit risk? I thought it was 5. But CFA sample says 35. How come it is 35? Help is appeciated.
Was spot price 35 or was the value of the option 35?
Not to get too cute here, but it also depends on the type of option. If European option, no current credit risk, only potential current risk.
i believe they mentioned the price of the option was 35 which is of course a ridiculous price that may trick you.
Bought call (question doesn’t say the price of the option). Strike is 30 and spot price is 35. This is from the free online sample. My answer was 5 but the correct answer was 35. It didn’t say whether it was an american or european either.
That was the *price* of the option, not the strike. I think I got caught on this too! MH
I remember this q. I thought it said price of the option.
Also black scholes are ready discounts the price of the option so you already have the PV.
so the spot was 30 and price of the option was 35?
Yeah spot of the underlying was 30 price of the option was 35
Yeah, just did this. Kinda tricky but fair if you RTFQ. I thought that he bought the option for $30 and it was now worth $35. I don’t remember any mention of the underlying price. Either way, the price of the option now is all that matters.
That makes more sense ozzy.
Ozzy’s correct. It was: Determine the credit risk on a call option the bank purchased for $30, the current price of the option is $35. I got caught on this one also. I also got caught on the “What is the payoff” by picking the profit instead of the payoff. Apparently you really do need to RTFQ.
Yes, rule #1. Can’t tell you how many times I’ve been burned by that.