ICMA Exam FMFQ Topic 4 Question 59 Discussion

Actual exam question for ICMA's FMFQ exam

Question #: 59
Topic #: 4

You hold a call option on a stock with a strike of EUR 35. The current premium for this option is EUR 3.80 and the underlying stock is trading at EUR 32. How much of this option price represents time value?

ANone as the option is in-the-money

BEUR 3.80

CEUR 3.00

DEUR 0.80

Show Suggested Answer

Suggested Answer: B

by Krissy at Jun 20, 2024, 12:07 AM

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Lon

5 months ago

I see your point, Cassie. So, the correct answer is D) EUR 0.80

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Quentin

5 months ago

Hey, at least they're not asking about the Black-Scholes model. That would really have me time-traveling to find the answer!

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Charlette

5 months ago

Time value? More like time to get a new job in finance if you can't figure this out!

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Gilberto

4 months ago

Time value is zero when the option is in-the-money.

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Jackie

5 months ago

A) None as the option is in-the-money

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Cassie

5 months ago

But isn't the option in-the-money? So, the time value should be zero

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Cristal

5 months ago

I agree with Mattie, EUR 0.80 makes sense

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Queen

5 months ago

Time value is always positive, so it can't be a negative number. I'm going with C) EUR 3.00.

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Laticia

4 months ago

I'm going with C) EUR 3.00 as well.

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Brande

4 months ago

I agree with C) EUR 3.00.

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Larae

5 months ago

I believe it's C) EUR 3.00.

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Odette

5 months ago

I think it's B) EUR 3.80.

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Vallie

5 months ago

Haha, this is a tricky one. If the option is in-the-money, the time value has to be zero, right? So I'm going with A) None as the option is in-the-money.

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Leslie

5 months ago

Wait, how can the time value be more than the actual premium? That doesn't make sense. I'm going with B) EUR 3.80.

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Rickie

5 months ago

I think the answer is D) EUR 0.80. The time value of an in-the-money option is the difference between the current premium and the intrinsic value, which is EUR 32 - EUR 35 = EUR -3. So the time value is EUR 3.80 - EUR -3 = EUR 0.80.

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Ivan

5 months ago

That makes sense, the time value is calculated as the difference between the premium and the intrinsic value.

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Francoise

5 months ago

I agree, the answer is D) EUR 0.80.

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Mattie

5 months ago

I think the time value is EUR 0.80

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