A call option written on CBA has a strike price of $78 and trades at $3.42....

A call option written on CBA has a strike price of $78 and trades at $3.42. CBA share price is $81. The split up of option value into intrinsic value and time value is:

a)$3.00 intrinsic value and $0.42 time value

b)-$2.00 intrinsic value and $5.42 time value

c)$2.00 intrinsic value and $1.42 time value

d)zero intrinsic value and $3.42 time value

Solutions

Expert Solution

Intrinsic Value of Call Option = Stock Price - Strike Price

Intrinsic Value = 81 - 78 = $3

Time Value = Premium - Intrinsic value

Time Value = 3.42 - 3 = $0.42

$3.00 intrinsic value and $0.42 time value

jeff jeffy answered 1 year ago

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