If a call option's stock price is $300 and its exercise price is $260, the option's intrinsic value is ___________?
Show answer Hide answer
Answer: C. 40
Explanation
Intrinsic value for a call option is stock price minus exercise price ($300 - $260 = $40). Subtracting the exercise strike price of two hundred sixty dollars from the current stock price of three hundred dollars gives forty dollars. An in-the-money call option possesses positive intrinsic value because the stock can be purchased below its market value. Intrinsic value represents the immediate cash payout an option holder would receive if the contract were exercised right now. Call options give buyers the right to purchase the underlying asset at a specified exercise price before the expiration date. Option pricing models separate total market option prices into intrinsic value components and remaining time value components.
Option A represents the exercise strike price itself rather than the calculated net difference between stock and strike prices. Option B incorrectly adds the stock price and exercise price together instead of subtracting them for intrinsic value. Option D represents the total stock price of the underlying asset rather than the calculated net intrinsic value.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
Related questions
Q1. If an option's intrinsic value is $280 and its price is $350, the option's time value is ___________?
Show answer Hide answer
Answer: D. 70
An option's time value is derived by subtracting intrinsic value from the market price. Subtracting 280 from the 350 market price yields a time value of 70. The remaining premium reflects the probability of profitable pr...
Q2. An index computed by summing the stock prices of listed companies and dividing by an adjusted divisor is categorized as ________?
Show answer Hide answer
Answer: D. Dow Indexes
A price weighted index is calculated by summing stock prices and dividing by an adjusted divisor. The Dow Jones Industrial Average represents the most famous example of this index methodology. Dividors are adjusted conti...
Q3. Subtracting an option's intrinsic value from its exercise price is used to calculate ____________?
Show answer Hide answer
Answer: B. price of underlying asset
Mathematical manipulation of option metrics and strike prices helps analysts work backward to determine underlying asset valuations. Subtracting an option's known intrinsic value from its exercise price provides a direct...
Q4. The designated physical location where New York Stock Exchange transactions take place is categorized as __________?
Show answer Hide answer
Answer: A. trading post
Trading posts are designated physical locations on the New York Stock Exchange floor. Specialists and market makers historically gathered at these posts to execute security trades. Floor brokers converged at specific tra...
Q5. With a capital gain of 9% and total stockholder return of 18%, the periodic dividend yield is __________?
Show answer Hide answer
Answer: D. 0.09
Subtracting capital gains from total stockholder return yields the periodic dividend yield. Subtracting 9 percent capital gains from 18 percent total return leaves 9 percent. Expressing this resulting percentage as a dec...
Q6. The futures auction method where traders publicly cry out bids and offers at specified prices is classified as _____________?
Show answer Hide answer
Answer: D. open outcry auction
Open outcry is a traditional method of communication in futures exchanges where traders use verbal shouts and hand signals. Traders gather in designated exchange trading pits to publicly announce bids and offers at speci...