Warner Motors' stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?

Question

Quizplus · Accepted Answer

The intrinsic value of the call option increases by $2 (from $0 to $2) when the stock price rises to $22. However, the option price increase will be less than $2 due to the time value and other factors. The percentage increase in the option price will be more than 10% because the initial option price is low ($1.50).

Warner Motors' Stock Is Trading at $20 a Share