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)
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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