Which one of the following is the correct expression of the lower bound of a call option price prior to option maturity?

Question

Quizplus · Accepted Answer

The correct expression for the lower bound of a call option price prior to option maturity is the greater of (the current stock price minus the present value of the exercise price) or zero. This is because a call option gives the holder the right, but not the obligation, to buy the underlying asset at a specified price (the exercise price) on or before a certain date. The value of this option cannot be negative, as the worst outcome for the holder is simply not to exercise the option, resulting in a value of zero. The expression in choice D captures this concept by stating that the call option price is equal to the greater of (the current stock price minus the exercise price discounted back to present value) or zero, reflecting the intrinsic value of the option.

Which One of the Following Is the Correct Expression of the Lower