A Three-Month Call Option with a Strike Price of $30

question 9

Essay

A three-month call option with a strike price of $30 iscurrently selling for $4 when the price of the underlying stock is selling for $32.
a. What is the call's intrinsic value?
b. What is the time premium?
c. What is the maximum possible loss to the buyer of the call?
d. What is the maximum possible profit to the seller of the option?
e. Would you buy the call if you expected the price of the stock to fall?
Three months later the stock is selling for $39.

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