Asked by Sticky Mochi on May 06, 2024
Verified
A stock with a current market price of $50 and a strike price of $45 has an associated call option priced at $6.50. This call has an intrinsic value of ________ and a time value of ________.
A) $5; $1.50
B) $1.50; $5
C) $0; $6.50
D) $6.50; $0
Intrinsic Value
The perceived or calculated true value of an asset, including tangible and intangible factors.
Time Value
The additional value of an option or other derivative based on the time left until its expiration, reflecting the potential for further changes in value.
Strike Price
The predetermined price at which the holder of an option can buy or sell the underlying asset.
- Gain an understanding of the factors and calculations related to the intrinsic and time values of options.
Verified Answer
Time value = Call premium − Intrinsic value = $6.50 − $5 = $1.50
Learning Objectives
- Gain an understanding of the factors and calculations related to the intrinsic and time values of options.
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