Explanation:
Cost per contract = $7 × 100 = $700
Total trade amount = $700 × 5 contracts = $3,500, which means the correct commission rate to use is $35 + 0.7% of the trade amount.
Initial commission costs per contract = $35 + ($700 × 0.7%) = $39.90. Because this is below the $45 maximum charge, $39.90 per contract will be charged.
Total commissions for 5 contracts = $35 + ($3,500 × 0.7%) = $59.50.
Commission per contract = $59.50 / 5 = $11.90, which is between the $3 minimum and $45 maximum per contract.
(Book 3, Module 38.2, LO 38.d)
Ultimate access to all questions.
Use the following information to answer the next two questions.
An investor buys five put contracts with a strike price of $55 per share. The current price of the underlying stock is $60. Assume the option price is $7 per share, and the contract is settled with shares rather than cash. The commission schedule is shown as follows:
| Trade Amount | Commission Rate |
|---|---|
≤ $2,500 | $35 + 0.9% of trade amount |
$2,501 to $11,999 | $35 + 0.7% of trade amount |
≥ $12,000 | $35 + 0.5% of trade amount |
Other Information
$3$45Question 53 of 100
Using the information above, what are the total commission costs based on the initial trade?
A
$39.90.
B
$59.50.
C
$199.50.
D
$297.50.
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