Final answer:
The intrinsic value of the ABC April 40 call option is $2, which is the difference between the stock price ($42) and the strike price ($40). The time value is $2.50, calculated as the difference between the option's premium ($4.50) and its intrinsic value ($2).
Step-by-step explanation:
The question pertains to the intrinsic value and time value of an options premium, specifically for a call option. Intrinsic value is the difference between the current market price of the underlying asset and the strike price of the option when the asset price is above the strike price for a call option. Since stock ABC is trading at $42 and the strike price of the April 40 call is $40, the intrinsic value is $2 ($42 - $40). The time value of an option is the portion of the option's premium that exceeds the intrinsic value. Given that the call option is trading at $4.50, the time value is $2.50 ($4.50 - $2). Therefore, the correct answer is intrinsic value of $2 and time value of $2.50.