If a Microsoft January 20 call option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $25.62, the price of the call option would have to be __________ to eliminate arbitrage opportunities.
A) $0.62
B) $5.62
C) $15.62
D) $25.62

Question

Quizplus · Accepted Answer

To eliminate arbitrage opportunities, the price of the call option must be equal to the difference between the market price of the underlying stock and the strike price of the option. In this case, the difference is $25.62 - $20 = $5.62, so the price of the call option must also be $5.62. Therefore, the correct answer is B.

If a Microsoft January 20 Call Option with a Strike