The lower bound on a call's value is either the:
A) strike price or zero, whichever is greater.
B) stock price minus the exercise price or zero, whichever is greater.
C) strike price or the stock price, whichever is lower.
D) strike price or zero, whichever is lower.
E) stock price minus the exercise price or zero, whichever is lower.

Question

Quizplus · Accepted Answer

The lower bound on a call's value is the intrinsic value, which is the difference between the stock price and the exercise price (also known as the strike price). If the stock price is lower than the exercise price, the intrinsic value is zero. Therefore, the lower bound is the greater between zero and the difference between stock price and exercise price, which is option B.

The Lower Bound on a Call's Value Is Either The