Which one of the following is the lower price bound for the intrinsic value of an American call option on a stock?
A)$0
B)strike price
C)stock price
D)Max(S − K, 0)
E)Max(K − S, 0)

Question

Quizplus · Accepted Answer

The lower price bound for the intrinsic value of an American call option on a stock is given by Max(S − K, 0), where S is the stock price and K is the strike price. This represents the option's value if exercised immediately, which cannot be negative; hence, the option is worth at least the difference between the stock price and the strike price, if that difference is positive.

Which One of the Following Is the Lower Price Bound