The intrinsic value of call option is _____________?
Correct answer: B. stock price - exercise price
- A. stock price ⁄ exercise price
- B. stock price - exercise price
- C. stock price + exercise price
- D. stock price x exercise price
Explanation
A call option has intrinsic value when the stock price exceeds the exercise price, calculated as stock price minus exercise price. Strictly, the value cannot be negative, so the complete formula is max(stock price − exercise price, 0).
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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