When the stock price is very high compared with the exercise price,the value of the call option approximates the difference between the stock price and the present value of the exercise price.

Question

Quizplus · Accepted Answer

This statement is true based on the concept of intrinsic value, which is the difference between the stock price and the exercise price. When the stock price is high, the intrinsic value of the call option increases and thus approximates the difference between the stock price and the present value of the exercise price.

When the Stock Price Is Very High Compared with the Exercise