If the underlying asset price is $25 and the strike price is $32, the intrinsic value of the option if it is a call option is ___________ and if it is a put option is ____________.
A) $0; $0
B) $0; $7
C) $7; $0
D) $7; $7

Question

Quizplus · Accepted Answer

The intrinsic value of a call option is calculated as the current asset price minus the strike price when the asset price is above the strike price, otherwise, it's $0 because the option wouldn't be exercised. For a put option, it's the strike price minus the current asset price when the asset price is below the strike price, otherwise, it's $0. Here, for the call option, since $25 is less than $32, its intrinsic value is $0. For the put option, since $25 is less than $32, its intrinsic value is $32 - $25 = $7.

If the Underlying Asset Price Is $25 and the Strike