The exercise price on one of Jarus Corporation's call options is $45 and the price of the underlying stock is $44. The option will expire in 25 days. The option is currently selling for $0.25.
a. Calculate the option's exercise value?
b. Calculate the value of the premium over and above the exercise value? What does this value represent?
C. Is this an out-of-the money option, at-the-money, or in-the-money? Why?
d. What will happen to the market price of the option if the underlying stock price changes to $44.50? Will the exercise value or the time value change? Explain.
e. If Jarus Corporation had issued a put option (instead of the call), would it have a greater or lesser value than the call option? Why?
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