Why isn't my image's transparency honoured in the sprite?

I’m following through Jesse Freeman’s Lynda course Unity 5 2D Essential Training. The exercise files contain sprites with transparency. Here’s a screenshot of one such sprite on the trainers screen (sorry it’s so small):

87050-screenshot-2017-01-31-121909.png

But here’s how it looks in my scene in Unity 5.5.0F3:

87051-screenshot-2017-01-31-122435.png

I think that the sprite’s alpha properties are set correctly, I have Alpha Source set to “Input Texture Alpha” and Alpha Is Transparency is checked. When I open the PNG in PhotoShop the transparency is correctly set.

Why is the transparent area rendered as opaque in my sprite?

It’s the format. In the training video he sets the sprites to True Color. In my version of Unity that is not one of the available options so I need to use the equivalent of setting the format to ‘RGBA 32bit’. (N.B. Thanks to n_palum’s answer.)