What are intrinsic value and time premium for the option

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Reference no: EM131313092

1. How does the price of an option and the exercise price affect the payoff from an option.

2. Suppose that the price of the underlying is $40 and that the option price is $5.

a. If the exercise price for a put option is $42, what are the intrinsic value and the time premium for this option?

b. If the exercise price for a call option is $50, what are the intrinsic value and the time premium for this option?

Reference no: EM131313092

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