SIE practice questionmediumOptions - Time Value
For an at-the-money call option, what is the intrinsic value and time value, assuming the premium is $3?
- AIntrinsic value = $0; Time value = $3✓ Correct answer
- BIntrinsic value = $3; Time value = $0
- CIntrinsic value = $3; Time value = $3
- DIntrinsic value = $0; Time value = $0
Explanation
Why A — Intrinsic value = $0; Time value = $3
At-the-money options have zero intrinsic value; the premium is all time value. Only options in the money have intrinsic value.
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