USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.

-Refer to Exhibit 14.5. The intrinsic value for the call option with a $45 exercise price is
A) $0.00.
B) $1.50.
C) $5.00.
D) $5.25.
E) $6.75.

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of Zanco Corporation is $50. Zanco Corporation has the following put and call option prices with exercise prices at $45 and $50.
 
-Refer to Exhibit 14.5. The intrinsic value for the call option with a $45 exercise price is
A) $0.00. 
B) $1.50. 
C) $5.00. 
D) $5.25. 
E) $6.75.

Quizplus · Accepted Answer

The intrinsic value for a call option is the current stock price minus the exercise price. Therefore, the intrinsic value for the call option with a $45 exercise price is $50 - $45 = $5. Since the option is in-the-money (current stock price is greater than the exercise price), the intrinsic value is positive. The other options are out-of-the-money, so their intrinsic value is $0.