The lower bound of a call option's value:
A)can be a negative value regardless of the stock or exercise prices.
B)can be a negative value but only when the exercise price exceeds the stock price.
C)can be a negative value but only when the stock price exceeds the exercise price.
D)must be greater than zero.
E)can be equal to zero.

Question

Quizplus · Accepted Answer

The lower bound of a call option's value is the maximum of zero or the difference between the stock price and the exercise price. Therefore, it can be equal to zero if the stock price is less than or equal to the exercise price.

The Lower Bound of a Call Option's Value