A call option on Dani Corp.is trading for $4.50.The strike price of the option is $25 and it has an expiration of 3 months.If the stock of Dani Corp.is trading at $28,how much of the option premium is attributed to intrinsic value?

Question

Quizplus · Accepted Answer

The intrinsic value of an option is the amount by which the option is in the money.In this example the option strike price is $25 and the stock of Dani Corp.is trading at $28.Therefore at this point the option is $3 in the money,so that is its intrinsic value.The rest of the premium can be attributed to time value.

A Call Option on Dani Corp