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What is time value of the option

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Reference no: EM132493781

Point 1: On January 3, Linus Ltd. purchases a call option for $200 from Lucy Corp. to buy 1,000 Rerun Inc. shares at an exercise price of $42 per share. The option expires May 1. At this time the current market price of Rerun shares is also $42.

Point 2: On March 31 (Linus' year end), the market value of the Rerun shares is $53, and the fair value of the option has increased to $14,000.

Point 3: On April 15, Linus takes delivery of (buys) the Rerun shares as agreed in the option contract. The market value of Rerun's shares is now $54.

Question a. Calculate the intrinsic value and the time value of this option at

1. January 3

2 March 31

Question b. Prepare general journal entries for the following dates:

1. January 3

2. March 31

3. April 15

  1. Is it loss on April 15th is 2000 ?
  2. And in question b) what is time value of the option?

Reference no: EM132493781

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