An American-Style Call Option with Six Months to Maturity Has

question 12

Multiple Choice

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 $12. What is the intrinsic value of the call?

• A) $12
• B) $8
• C) $0
• D) $23

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Definitions:

Disinflation

A reduction in the rate of inflation, indicating a slowdown in the rate at which prices for goods and services are rising.

Phillips Curve

An economic concept that illustrates an inverse relationship between the rate of unemployment and the rate of inflation in an economy over time.

Interest Rates

The cost of borrowing money or the compensation for the service and risk of lending money, usually expressed as a percentage rate over a period of time.

Cyclical Unemployment

Unemployment that arises during downturns in the business cycle, particularly during recessions, when there is insufficient demand for goods and services.