The lower bound on a call's value is defined as the:
A)greater of the strike price or zero.
B)greater of the stock price minus the exercise price or zero.
C)lesser of the strike price or the stock price.
D)lesser of the strike price or zero.
E)lesser of the stock price minus the exercise price or zero.

Question

Quizplus · Accepted Answer

The lower bound on a call option's value is the greater of the stock price minus the exercise (strike) price or zero. This is because a call option gives the holder the right to buy the stock at the strike price. If the stock's current price is above the strike price, the call has intrinsic value equal to the difference. If the stock's price is below the strike price, the call's value is not negative but zero, as the option would not be exercised.

The Lower Bound on a Call's Value Is Defined as The