The upper bound of a call's value is equal to:
A) Zero.
B) The exercise price.
C) The stock price.
D) The difference between the exercise price and the stock price.
E) The initial value when the call was written.

Question

Quizplus · Accepted Answer

The upper bound of a call's value is the current stock price because a call option gives the holder the right to buy the stock at the exercise price. If the stock price is very high relative to the exercise price, the maximum value the call can reach is essentially the stock price itself, as no rational investor would pay more for the option than it would cost to directly purchase the stock in the open market.

The Upper Bound of a Call's Value Is Equal To