// Numbas version: finer_feedback_settings
{"name": "Call option - break even price and whether to exercise the option or not", "extensions": [], "custom_part_types": [], "resources": [], "navigation": {"allowregen": true, "showfrontpage": false, "preventleave": false, "typeendtoleave": false}, "question_groups": [{"pickingStrategy": "all-ordered", "questions": [{"variable_groups": [], "ungrouped_variables": ["premium", "exercise", "BE", "share", "total"], "tags": [], "variablesTest": {"maxRuns": 100, "condition": ""}, "rulesets": {}, "parts": [{"customName": "", "gaps": [{"correctAnswerStyle": "plain", "customName": "", "extendBaseMarkingAlgorithm": true, "mustBeReduced": false, "variableReplacements": [], "type": "numberentry", "correctAnswerFraction": false, "variableReplacementStrategy": "originalfirst", "unitTests": [], "showFeedbackIcon": true, "showFractionHint": true, "maxValue": "BE", "marks": 1, "useCustomName": false, "allowFractions": false, "mustBeReducedPC": 0, "notationStyles": ["plain", "en", "si-en"], "scripts": {}, "customMarkingAlgorithm": "", "showCorrectAnswer": true, "minValue": "BE"}], "extendBaseMarkingAlgorithm": true, "variableReplacements": [], "type": "gapfill", "prompt": "<p>What share price would allow you to break even?</p>\n<p></p>\n<p>$\\$$&nbsp;[[0]]&nbsp;</p>", "variableReplacementStrategy": "originalfirst", "unitTests": [], "showFeedbackIcon": true, "sortAnswers": false, "marks": 0, "useCustomName": false, "scripts": {}, "customMarkingAlgorithm": "", "showCorrectAnswer": true}, {"customName": "", "extendBaseMarkingAlgorithm": true, "matrix": ["if(total>BE,1,0)", "if(BE>total,1,0)"], "showCellAnswerState": true, "variableReplacementStrategy": "originalfirst", "unitTests": [], "variableReplacements": [], "shuffleChoices": false, "displayColumns": "1", "maxMarks": 0, "displayType": "radiogroup", "showFeedbackIcon": true, "scripts": {}, "customMarkingAlgorithm": "", "type": "1_n_2", "minMarks": 0, "distractors": ["", ""], "marks": 0, "choices": ["Yes. I would exercise the option to buy the shares.", "No. I would&nbsp;not use the option, and buy the shares in the market."], "prompt": "<p>If the current share price is $\\$\\var{share}$ and you are ready to buy shares, would you exercise the option?</p>", "showCorrectAnswer": true, "useCustomName": false}], "name": "Call option - break even price and whether to exercise the option or not", "preamble": {"css": "", "js": ""}, "statement": "<p>If you are unsure of how to do&nbsp;a question, click on&nbsp;<em>Reveal answers</em>&nbsp;to see the full working. Then, once you understand how to do the question, click on&nbsp;<em>Try another question like this one</em>&nbsp;to start again. Do each question repeatedly to ensure you have mastered it.</p>\n<p></p>\n<p></p>\n<p>Suppose you have bought&nbsp;a call option with&nbsp;an exercise price of $\\$\\var{exercise}$ per share and a premium of $\\$\\var{premium}$ per share.&nbsp;</p>", "advice": "<p>a)</p>\n<p>You have already paid the premium of $\\$\\var{premium}$ to the&nbsp;writer (seller) of the option (in order to buy the option).</p>\n<p>To have any chance of breaking even you will need to buy some shares using the call option.&nbsp;The call option allows you to buy shares at the exercise price of $\\$\\var{exercise}$.&nbsp;</p>\n<p>This means you would have spent a total of $\\$\\var{premium}+\\$\\var{exercise}=\\$\\var{BE}$, therefore, the share price needs to be&nbsp;$\\$\\var{BE}$ in order for you to breakeven.</p>\n<p></p>\n<p>b)</p>\n<p>To exercise the option you would be buying the shares with a total outlay of&nbsp;$\\$\\var{BE}$, since you have already bought the call option at $\\$\\var{premium}$ and the exercise&nbsp;price is $\\$\\var{exercise}$.</p>\n<p>To&nbsp;buy the shares without exercising the option your total outlay would be $\\$\\var{premium}+\\$\\var{share}=\\$\\var{total}$, since you have already bought the call option at $\\$\\var{premium}$ and the share price is currently $\\$\\var{share}$.</p>\n<p><span data-jme-visible=\"total&lt;BE\">Therefore, it would be cheaper to buy the shares in the market.</span></p>\n<p><span data-jme-visible=\"total&gt;BE\">Therefore, it would be cheaper to use the call option.</span></p>\n<p></p>", "metadata": {"description": "Financial maths. Determine the break even price of a call option. And whether to use the option or not given a market price.", "licence": "Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International"}, "functions": {}, "extensions": [], "variables": {"premium": {"templateType": "anything", "group": "Ungrouped variables", "definition": "random(0.5..3#0.01)", "name": "premium", "description": ""}, "total": {"templateType": "anything", "group": "Ungrouped variables", "definition": "share+premium", "name": "total", "description": ""}, "BE": {"templateType": "anything", "group": "Ungrouped variables", "definition": "premium+exercise", "name": "BE", "description": ""}, "share": {"templateType": "anything", "group": "Ungrouped variables", "definition": "random(floor(0.67*BE)..ceil(1.2*BE)#0.11 except exercise)", "name": "share", "description": ""}, "exercise": {"templateType": "anything", "group": "Ungrouped variables", "definition": "random(premium*7..premium*25)", "name": "exercise", "description": ""}}, "type": "question", "contributors": [{"name": "Ben Brawn", "profile_url": "https://numbas.mathcentre.ac.uk/accounts/profile/605/"}], "resources": []}]}], "contributors": [{"name": "Ben Brawn", "profile_url": "https://numbas.mathcentre.ac.uk/accounts/profile/605/"}]}