Consider European CALL options on the same non-dividend paying stock XYZ. Assume that the price of...
Consider European CALL options on the same non-dividend paying stock XYZ. Assume that the price of stock XYZ is 100. Which of the following call options has the highest price?
Select one:
a. Exercise Price = 100, Time to expiration =1 year
b. Exercise Price = 90, Time to expiration = 2 year
c. Exercise Price = 100, Time to expiration =2 year
d. Exercise Price = 90, Time to expiration = 1 year
Homework Answers
An Option is Valued by Premium. Premium consist of two values one is Intrensic Value, second is Time Value of Money. Intresnsic Value is given by = Stock Price - Exercise Price while time value is Option vale - Intrensic Vlaue. HIgher the time to expiration, higher will be the value.
So, the Stock which have Strike Price of 90 and time to ecpiration is 2 years will have the highest value.
Option B is Correct. Exercise Price = 90, Time to expiration = 2 year
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