Asked by Diana Gasparyan on May 11, 2024
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An American-style call option with six months to maturity has a strike price of $35. The underlying stock now sells for $43. The call premium is $14. What is the time value of the call?
A) $8
B) $14
C) $0
D) $6
E) Cannot be determined without more information
Time Value
Refers to the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
Strike Price
The strike price, also known as the exercise price, is the set price at which an option's holder can buy (in the case of a call) or sell (in the case of a put) the underlying asset or security.
Call Premium
The amount by which the price of a call option exceeds its intrinsic value, reflecting the time value and volatility of the underlying asset.
- Discover and assess the fundamental and time-specific values of options.
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Learning Objectives
- Discover and assess the fundamental and time-specific values of options.
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