For an American call option,A and B in the graph are
A)time value and intrinsic value.
B)intrinsic value and time value.
C)in-the-money and out-of-the money.
D)none of the above

Question

For an American call option,A and B in the graph are 
A)time value and intrinsic value. 
B)intrinsic value and time value. 
C)in-the-money and out-of-the money. 
D)none of the above

Quizplus · Accepted Answer

In an American call option, the intrinsic value is the difference between the underlying asset's current price and the strike price of the option. The time value is the remaining portion of the option's premium that is not accounted for by intrinsic value, which reflects the possibility that the underlying asset's price may change before expiration. Therefore, A and B are both components of the premium of an American call option, but B correctly identifies the order of their presentation on the graph.

For an American Call Option,A and B in the Graph