Smith Enterprises Stock Currently Sells for $17

question 82

Multiple Choice

Smith Enterprises stock currently sells for $17.50.A call option on the stock has a strike price of $15 and currently sells at $4.50.What is the time value of the option?

• A) $2.50
• B) $0
• C) $2.00
• D) $4.50

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Definitions:

Probable

In financial and legal contexts, a high likelihood that an event will occur, often used in reference to the realization of assets or the incurrence of liabilities.

Reasonably Estimated

A valuation or measurement that can be calculated with a reasonable level of accuracy, often applied in accounting for provisions and contingencies.

Fair Value Option

The choice given to companies to report financial assets and liabilities at estimates of their current market value, rather than at historical cost or using other valuation methods.

Accounting-induced Volatility

Accounting-induced volatility is the fluctuation in financial metrics or stock prices resulting from changes in accounting principles or practices.