An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.What is the time value of the call?
A) $8
B) $12
C) $0
D) $4
E) cannot be determined without more information.

Question

Quizplus · Accepted Answer

The intrinsic value of the option is $8 (i.e. $43 - $35), so the time value must be $4 (i.e. the total premium of $12 minus the intrinsic value of $8). Therefore, the correct choice is D.

An American-Style Call Option with Six Months to Maturity Has