1. Determine the intrinsic values of the following call options when the stock is selling at $32 just prior to expiration of the options.
a. $25 call price
b. $30 call price
c. $35 call price
To determine the intrinsic values of call options, we need to compare the strike price of the options to the current stock price. The intrinsic value of a call option is the difference between the current stock price and the strike price, but only if the difference is positive. If the difference is negative, the intrinsic value is zero.
Let's go through each option and calculate their intrinsic values:
a. $25 call price:
Since the stock is priced at $32 and the strike price is $25, the difference is $32 - $25 = $7. Since this difference is positive, the intrinsic value of the $25 call option is $7.
b. $30 call price:
Since the stock is priced at $32 and the strike price is $30, the difference is $32 - $30 = $2. Again, this difference is positive, so the intrinsic value of the $30 call option is $2.
c. $35 call price:
Here, the strike price ($35) is greater than the stock price ($32). Since the difference is negative ($32 - $35 = -$3), the intrinsic value of the $35 call option is zero.
To summarize:
a. $25 call price: Intrinsic value = $7
b. $30 call price: Intrinsic value = $2
c. $35 call price: Intrinsic value = $0