Financial Risk Manager Part 1

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Explanation:

Gross profit = $55 - $47 = $8 per share
$8 × 100 shares × 5 contracts = $4,000

Additional commission costs = 1.25% × ($55 × 100 shares × 5 contracts) + 1.25% × ($47 × 100 shares × 5 contracts)
= 1.25% × ($27,500 + $23,500) = 1.25% × $51,000 = $637.50

Wait — correction: The explanation says:

Additional commission costs = 1.25% × ($55 × 100 shares × 5 contracts) + 1.25% × ($47 × 100 shares × 5 contracts)
= 1.25% × ($27,500 + $23,500) = $637.50

But then it says:

Total commission costs = $59.50 + $637.50 = $697.00

So let’s verify that:

$55 × 100 × 5 = $27,500
$47 × 100 × 5 = $23,500
Sum = $51,000
1.25% of $51,000 = 0.0125 × 51,000 = $637.50 — correct.

Then where does $59.50 come from? Possibly the initial premium paid (or maybe a fixed fee), but not explained.

Then:

Total commission costs = $59.50 + $637.50 = $697.00

Net profit = $4,000 − $3,500 − $697.00 = −$197.00

(Book 3, Module 38.2, LO 38.d)

Explanation:

Gross profit = $55 - $47 = $8 per share
$8 × 100 shares × 5 contracts = $4,000

Additional commission costs = 1.25% × ($55 × 100 shares × 5 contracts) + 1.25% × ($47 × 100 shares × 5 contracts)
= 1.25% × ($27,500 + $23,500) = 1.25% × $51,000 = $637.50

Wait — correction: The explanation says:

Additional commission costs = 1.25% × ($55 × 100 shares × 5 contracts) + 1.25% × ($47 × 100 shares × 5 contracts)
= 1.25% × ($27,500 + $23,500) = $637.50

But then it says:

Total commission costs = $59.50 + $637.50 = $697.00

So let’s verify that:

$55 × 100 × 5 = $27,500
$47 × 100 × 5 = $23,500
Sum = $51,000
1.25% of $51,000 = 0.0125 × 51,000 = $637.50 — correct.

Then where does $59.50 come from? Possibly the initial premium paid (or maybe a fixed fee), but not explained.

Then:

Total commission costs = $59.50 + $637.50 = $697.00

Net profit = $4,000 − $3,500 − $697.00 = −$197.00

(Book 3, Module 38.2, LO 38.d)

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Question 54 of 100

Using the information above, what is the net profit or loss if the stock declines to `$47` before expiration and the option holder were to exercise and then buy the stock?

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UAnonymous

Last updated: July 1, 2026 at 12:35

$197.00 loss.

50.0%

$127.40 loss.

50.0%

$206.25 profit.

$440.50 profit.

Financial Risk Manager Part 1

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Question 54 of 100 Using the information above, what is the net profit or loss if the stock declines to $47 before expiration and the option holder were to exercise and then buy the stock?

Comments (0)

Question 54 of 100

Using the information above, what is the net profit or loss if the stock declines to `$47` before expiration and the option holder were to exercise and then buy the stock?