Sanford,Inc. ,enters into a call option contract with Sons Investment Co.on January 2,2014.This contract gives Sanford the option to purchase 1,000 shares of MAX stock at $100 per share.The option expires on April 30,2014.MAX shares are trading at $100 per share on January 2,2014,at which time Sanford pays $400 for the call option.The $400 paid by Sanford,Inc. ,to Sons Investment is referred to as the
A) option premium.
B) notional amount.
C) strike price.
D) intrinsic value.

Question

Quizplus · Accepted Answer

The $400 paid by Sanford, Inc. to Sons Investment is referred to as the option premium. Option premium is the price paid by the buyer to the seller for granting a specific type of option contract.