1 decade ago. If the rise is more than the income from the premium less the cost of the transaction, the seller has a net loss. In contrast, premium pricing is a costly approach when applied to callable bonds. a) $390,000 b) $1,080,000 c) $702,000 The gain on the sale = $4,800 sale proceeds - $4,707 cost basis = $93. Still have questions? What is the net cost of the call premium? the net cost of the call premium should be 9% x 0.65 = 5.85%. The premium is the basis of your "insurance payment." An acquisition premium is is a figure that's the difference between the estimated real value of a company and the actual price paid to acquire it. The corporation's tax rate is 35%. In this case, cost basis = (100 shares x $45 per share + $200 premium + $7 commission) = $4,707. When a call option is purchased, the trader instantly knows the maximum amount of money they can possibly lose. Lv 7. Favorite Answer. It is also your break-even point.. For example, if you buy 100 shares of ABC stock for $39 and sell a call option with a strike of 40 for $2 then your net debit calculation is ($39-$2), or … 1 Answer. It is the amount you pay for buying the stock minus the amount you receive for selling the call option. 0 2. Net Debit is the cost to complete both sides of a buy-write (covered call) transaction. What is the net cost of the call premium? Ask Question + 100. buz. 1 Answer to Buchanan Corp. is refunding $12 million worth of 10% debt. Relevance. The cost basis is the strike price per share multiplied by the number of shares, to which you add the call premium and the commission. Using the market prices from the trade ticket above, you can see that the initial spread is going to cost $225.00 to close out ($3.30 debit from the purchase of the Sep 55.00 Call plus the $1.05 credit from the sale of the Sep 60.00 Call x 100), but the new spread will bring in a credit of $95.00 ($3.10 credit from the sale of the Oct 60.00 Call … the profit for S < 60 comes out to 52 - S, and the profit for S > 60 comes out to S - 68. Net Debit. If the rise is more than the cost of the premium and transaction, the buyer has a net gain. The max loss is always the premium paid to own the option contract; in this example, $60. The call premium is 9%. The seller of a call option loses money if the futures price rises above the strike price. The new bonds will be issued for 8%. Please show ALL work of how the answer was composed. An insurance premium may be considered taxable income to you in certain cases (for example, coverage for group-term life insurance that exceeds $50,000 and is carried directly or indirectly by an employer). Premium Priced Bonds – Callable in 8 Years at 100% Get your answers by asking now. The call premium is 9%. Whether the stock falls to $5 or $50 a share, the call option holder will only lose the amount they paid for the option. The call premium is $5 and the put premium is $3.At expiration, you break even if the stock price is equal to both $52 and $68 when looking at the payoff table, we have to add, instead of subtract, both the payoffs from buying the call and the put. As shown below, if the rate on the bonds is increased on callable bonds, the price paid to the issuer declines in proportion to the added debt service cost and the True Interest Cost increases. Answer Save. tax rate is 35% the call premium is 9% what is the net cost of the call premium. Source: StreetSmart Edge®.

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