When we consider the value of a call option that has not expired, we must:

Question

Quizplus · Accepted Answer

When considering the value of a call option that has not expired, we must compare the current value of the underlying asset with the present value of the exercise price, discounted at the risk-free rate. This is because the option holder has the right to buy the underlying asset at the exercise price, and this value needs to be discounted to account for the time value of money. Option A is incorrect because it mentions the present value of the cash flow by underlying asset, which is not relevant to the value of the call option. Option C is incorrect because it mentions the nominal rate, which does not account for inflation, and Option D is incorrect because it mentions compounding, which is not relevant to the present value calculation.

When We Consider the Value of a Call Option That