We Have a Stock Selling for $90

question 11

Multiple Choice

We have a stock selling for $90.00. There is a put option for this stock with a strike price of $85 and an option price of $1.20:

• A) the intrinsic value of this option is $0.00 and the time value of the option is $1.20.
• B) the intrinsic value of this option is $90.00 and the time value of the option is $1.20.
• C) the intrinsic value of this option is -$5.00 and the time value of the option is $1.20.
• D) you cannot determine the intrinsic value or time value of the option since the strike price is less than the underlying asset price.

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Definitions:

Taxable Income

The amount of income used to calculate how much tax an individual owes to the government, considering all income sources and permissible deductions.

Charitable Organization

A nonprofit entity that operates for the public good, often focused on educational, religious, or humanitarian goals.

Publicly-traded Corporation

A company whose shares are openly sold and traded to the public on one or more stock exchanges.

Earnings and Profits

A measure used by the IRS to determine a corporation’s ability to pay dividends to its shareholders.