American call and put premiums
A)should be at least as large as their intrinsic value.
B)should be no larger than their intrinsic value.
C)should be exactly equal to their time value.
D)should be no larger than their speculative value.

Question

Quizplus · Accepted Answer

American call and put premiums should be at least as large as their intrinsic value. Intrinsic value is the difference between the current market price of the underlying asset and the strike price of the option. Therefore, if the premium is less than the intrinsic value, the holder of the option could buy or sell the underlying asset at a lower price than its current market value and immediately sell or buy it for a profit, which would violate the principle of no arbitrage.

American Call and Put Premiums