For an American call option,A and B in the graph are
A)time value and intrinsic value.
B)intrinsic value and time value.
C)in-the-money and out-of-the money.
D)none of the above

Question

For an American call option,A and B in the graph are 
A)time value and intrinsic value. 
B)intrinsic value and time value. 
C)in-the-money and out-of-the money. 
D)none of the above

Quizplus · Accepted Answer

Intrinsic value is the difference between the current stock price and the strike price of the option. Time value is the premium paid for the possibility of the option gaining more intrinsic value as time passes. For an American call option, the intrinsic value will increase as the stock price increases, but the time value will decrease as the option approaches expiration. Therefore, A and B in the graph represent intrinsic value and time value, respectively.

For an American Call Option,A and B in the Graph