An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12. What is the time value of the call?
A)$8
B)$12
C)$0
D)$4

Question

Quizplus · Accepted Answer

The time value of an option is the difference between its premium and its intrinsic value. The intrinsic value of the call option is the current stock price ($43) minus the strike price ($35), which equals $8. The call premium is $12. Therefore, the time value is the call premium ($12) minus the intrinsic value ($8), which equals $4.

An American-Style Call Option with Six Months to Maturity Has