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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!
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