Answer:
Citigroup's profit on the call option = 10,000
Explanation:
Call option:
It is an option contract in which the buyer has the right to buy a specified quantity of a security at a specified price within a fixed period of time.
Formula for calculating premium:
premium = call option * designated premium per euro
premium = 5,00,000 * 0.04
premium = 20,000
Formula for calculating loss on exercise of the option:
loss on exercise of the option = call option * ( exercise price - spot price at maturity date )
loss on exercise of the option = 5,00,000 * ( 0.73 - 0.71 )
loss on exercise of the option = 10,000
Formula for calculating profit on the call option:
Profit on the call option = premium - loss on exercise of the option
Citigroup's profit on the call option = 20,000 - 10,000
Citigroup's profit on the call option = 10,000
Therefore, Citigroup's profit on the call option = 10,000
