CFA Practice Question
Which of the following call options on a stock costs the most?
A. A 3-month European call with a strike price of $39.
B. A 3-month American call with a strike price of $37.
C. A 3-month American call with a strike price of $42.
Explanation: For call options, the higher the strike price, the lower the premium, all else equal.
User Contributed Comments 3
| User | Comment |
|---|---|
| fordo | if the options were all ref'd off the same cash spot rate then I agree, B is correct, but if they are all at the money options (or some other relative reference) then C will be the correct answer... |
| PedroEdmundo | cost is different from payoff |
| MrBruny | Regardless of where the spot price sits (i.e. anywhere between 0 & infinity), the call with the lowest strike will always have the greatest intrinsic value. |