Cazden Motors\' stock is trading at $30 a share. Call options on the company\'s

Question

Cazden Motors' stock is trading at $30 a share. Call options on the company's stock are also available, some with a strike price of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options?

a.     The options with the $25 strike price will sell for less than the options with the $35 strike price.

b.    The options with the $25 strike price have an exercise value greater than $5.

c.     The options with the $35 strike price have an exercise value greater than $0.

d.    If Cazden's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.

e.     The options with the $25 strike price will sell for $5.

Explanation / Answer

b.The options with the $25 strike price have an exercise value greater than $5.

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