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Question 9 1 pts Consider the following data for Stock ABC and then choose the correct answer to the questions below: Price of Stock ABC $54
Question 9 1 pts Consider the following data for Stock ABC and then choose the correct answer to the questions below: Price of Stock ABC $54.00 Exercise Price of 3-month Call $50.00 Market Price of Call $6.00 What is the time value for the call? What is the maximum profit the seller of a call could earn? $2.00 : $50.00 $2.00 : $6.00 $4.00 : $50.00 $6.00 : $6.00 $4.00 : $2.00
Expert Solution
- $ 2.00 :$ 6.00
Price of the stock: $ 54
Excercise price of 3 month's call: $ 50
Market price of call: $ 6
Value of call consist ot intrinsic value and extrinsic value, Intrinsic value of call is difference of stock price and excercise price. Extrinsic value consist of time value of call/ put option
In the given situation;
Intrinsic value: $ 54 - $ 50 = $ 4
Therefore, time value of call option : $ 6 - $ 4 = $ 2
Seller of the call option can have the maximum earning / profit of call premium, which is $ 6 in the given question.
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