We can decompose an option's value into four parts: 

1) the intrinsic value,

 2) the time value of money,

 3) the insurance value, and

 4) the impact of payouts (dividends)

Given the below data on stocks and options 

S = $50, 

K = $40,

 г =10%, 

T = 1, 

D = $2 and will be paid out at T = 0.5

Determine the below values for a European call option selling at $15 today 

Intrinsic value: (Enter numeric value only, no dollar sign or comma. Keep 2 decimal places) 

Time Value of Money: (Enter numeric value only, no dollar sign or comma. Keep 2 decimal places) 

Insurance value (Enter numeric value only, no dollar sign or comma. Keep 2 decimal places) 

Impact of dividends: (Enter numeric value only, no dollar sign or comma. Keep 2 decimal places.

 HINT: this value bears a negative sign)

Answer rating: 100% (QA)

The intrinsic value is the amount that would be realized if the option was exercised immediately Int... View the full answer