You buy a call option with strike price of $50. Currently, the market value of the underlying asset is $48. The call option premium is $4.25. Assume that the contract is for 100 units of the underlying asset and that the interest rate is 0%.
a. What is the intrinsic value of the call option?
b. What is the time value of the call option?
c. What is your net cash flow if the market value of the option’s underlying asset is $46 on the expiration date?
d. What is your net cash flow if the market value of the options’ underlying asset is $53 on the expiration date?
