American call and put premiums
A)should be at least as large as their intrinsic value.
B)should be at no larger than their moneyness.
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. This is because any premium below the intrinsic value would result in a risk-free profit for the buyer, as they could immediately exercise the option and make a profit. Therefore, the premium must be at least equal to the intrinsic value to compensate the seller for the risk they are taking.

American Call and Put Premiums