At contract maturity the value of a call option is ________, where X equals the option's strike price and ST is the stock price at contract expiration.
A) max (0, ST − X)
B) min (0, ST − X)
C) max (0, X − ST)
D) min (0, X − ST)

Question

Quizplus · Accepted Answer

At contract maturity, a call option is only exercised if it is in-the-money, meaning the stock price exceeds the strike price. Therefore, the value of a call option at maturity is max(0, ST - X). Option B and D are incorrect because they involve negative values which is not possible for a call option at maturity. Option C is incorrect because it represents the value of a put option, not a call option.

At Contract Maturity the Value of a Call Option Is