Assume an option with a price of $4.10 and current pay-off,if exercised today of $0.65.Given a risk-free rate of 5%,the time value of the option now is:

A) $ \$ 0.05 $
B) $ \$ 0.10 $
C) $ \$ 2.00 $
D) $ \$ 2.05 $

Question

Assume an option with a price of $4.10 and current pay-off,if exercised today of $0.65.Given a risk-free rate of 5%,the time value of the option now is:

A) $ \$ 0.05 $
B) $ \$ 0.10 $
C) $ \$ 2.00 $
D) $ \$ 2.05 $

Quizplus · Accepted Answer

Re-arranging equation 16.1,we can compute the time value of the option as follows: 4.10 - 0.65 = 3.45.

Assume an Option with a Price of $4 $0.05 \$ 0.05 $0.05

Assume an Option with a Price of $4 $\$ 0.05$