Question

An American-style call option with six months to maturity has a strike price of $44. The underlying stock now sells for $54. The call premium is $14.

What is the time value of the call?
A. $8
B. $12
C. $6
D. $4
D. Cannot be determined without more information

Answer 1

The time value of the American-style call option, with a premium of $14 and an intrinsic value of $10, is $4. The intrinsic value is calculated by subtracting the strike price from the current stock price.

Step-by-step explanation:

The question is asking to determine the time value of an American-style call option. The intrinsic value of the option can be found by subtracting the strike price from the current stock price. Since the stock is priced at $54 and the strike price is $44, the intrinsic value is $10. The premium paid for the call option is $14, which includes the intrinsic value and the time value. To find the time value, subtract the intrinsic value from the premium: $14 - $10 = $4. Therefore, the time value of the call option is $4, which corresponds to option D.