Finance Questions? Ask a Financial Expert for Answers ASAP
Thanks for your question.
a. The stock price is $30. The strike (exercise) price is $25. Therefore, the inherent value is $30-$25= $5 (difference between stock price and exercise price). b. However, the option's market value is $7 which is $2 more than the inherent value of $5. Therefore, the premium on the option is $2 which represents the remaining time value of the option. Hope this helps!