Barco Corp.common stock is currently selling for $36.50.A call option on Barco stock costs $.75 per share on a normal contract of 100 shares.This option has an exercise price of $39 and expires in one month.What is the minimum value of this option?

Question

Quizplus · Accepted Answer

The minimum value of the option is $0 because the exercise price of $39 is higher than the current stock price of $36.50. Therefore, it would not make sense for someone to exercise this option and buy the stock for $39 when they could buy it for $36.50 on the open market. As a result, the option would expire worthless, and the holder would lose the premium paid for it, which is $0.75 per share or $75 for the contract.