Assume the following American call option will finish in-the-money: the exercise price is $75, maturity is one year, current stock price is $72.50, and the risk-free interest rate is 6%. What is the value of the call option?
A) -$6.60
B) $0.00
C) $1.75
D) $2.15
E) $2.65

Question

Quizplus · Accepted Answer

The value of an American call option that is in-the-money can be estimated using various financial models, such as the Black-Scholes model. However, without applying a specific model here and given the lack of specific calculation details, it's important to note that the value of an in-the-money call option (where the current stock price is below the exercise price but expected to increase) should be positive, reflecting the potential for profit. Among the provided options, $1.75 is the only positive value that doesn't require specific model calculations to be seen as plausible, making it the best choice given the information.

Assume the Following American Call Option Will Finish In-The-Money: the Exercise