Which of the following expressions represents the value of a call option to its holder on the expiration date? A) S_T − X if S_T X, 0 if S_T ≤ X B) − (S_T − X) if S_T X, 0 if S_T ≤ X C) 0 if S_T ≥ X, X − S_T if ST

Question

Which of the following expressions represents the value of a call option to its holder on the expiration date? A) S_T − X if S_T > X, 0 if S_T ≤ X B) − (S_T − X) if S_T> X, 0 if S_T ≤ X C) 0 if S_T ≥ X, X − S_T if ST < X D) 0 if S_T ≥ X, − (X − S_T) if S_T < X

Quizplus · Accepted Answer

A call option gives its holder the right to buy an underlying asset at a specific price (strike price) on or before a specific date (expiration date). The value of a call option to its holder on the expiration date is the difference between the spot price of the underlying asset (ST) and the strike price (X) if ST is greater than X. If ST is less than or equal to X, the value of the call option is zero. Therefore, the expression that represents this is A.

Which of the Following Expressions Represents the Value of a Call