A Call Option Has an Exercise Price of $30 and a Stock

question 82

Multiple Choice

A call option has an exercise price of $30 and a stock price of $34. If the call option is trading for $5.25, what is the intrinsic value of the option?

• A) $0
• B) $1.25
• C) $4
• D) $5.25

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Definitions:

Required Rate Of Return

The minimum annual percentage earned by an investment that will induce individuals or companies to commit their money.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the company's short-term liquidity and financial health.

Net Present Value (NPV)

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of an investment or project.

Net After-Tax Salvage Value

The estimated value of an asset at the end of its useful life, after subtracting any taxes associated with its disposal.