On April 4, Alam Company Purchased a Call Option on 10,000

question 44

Multiple Choice

On April 4, Alam Company purchased a call option on 10,000 bushels of corn with delivery on June 30. The strike price is $2.15 per bushel. The value of the option and the market value of the corn are as follows.

• A)On April 4, the intrinsic value of the option is $1,100.
• B)On April 30, the time value of the option is $1,010.
• C)On May 31, the intrinsic value of the option is $230.
• D)On June 30, the time value of the option is $2,700.

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Definitions:

Mandatory Arbitration Clause

A provision in a contract requiring the parties to resolve disputes through arbitration, rather than through litigation.

Waived

Means voluntarily giving up a known right, claim, or privilege.

Right to Sue

The legal authority granted to an individual or entity to bring a lawsuit against another party.

Neutral Third Party

An unbiased individual or group engaged to mediate or arbitrate between conflicting parties.