ICMA FMFQ Exam - Topic 3 Question 63 Discussion

Actual exam question for ICMA's FMFQ exam

Question #: 63
Topic #: 3

[All FMFQ Questions]

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 Fernanda at Aug 06, 2024, 05:45 AM

Limited Time Offer

25%

Off

Get Premium FMFQ Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Billy

3 months ago

I thought the whole premium was time value, but I guess not!

upvoted 0 times

...

Elliot

3 months ago

Yeah, it's all about that time value, so EUR 0.80 makes sense.

upvoted 0 times

...

Lon

4 months ago

Wait, how can it be in-the-money if the stock is at EUR 32?

upvoted 0 times

...

Rosalia

4 months ago

I think it's EUR 0.80, right?

upvoted 0 times

...

Farrah

4 months ago

The option is out-of-the-money, so time value is definitely there.

upvoted 0 times

...

Thurman

4 months ago

I feel like the time value is just the premium minus any intrinsic value, but I'm confused about how to apply that here since the option is not in-the-money.

upvoted 0 times

...

Mike

5 months ago

I practiced a similar question where we had to separate intrinsic and time value. I think here, the intrinsic value is zero since the option is out-of-the-money.

upvoted 0 times

...

Desmond

5 months ago

I remember something about intrinsic value and time value; since the stock is below the strike price, the entire premium might not be time value.

upvoted 0 times

...

Tamie

5 months ago

I think the time value is the part of the premium that accounts for the potential of the stock moving above the strike price, but I'm not sure how to calculate it exactly.

upvoted 0 times

...

Lashaun

5 months ago

Alright, I got this. The current premium is EUR 3.80, and the intrinsic value is the difference between the strike price (EUR 35) and the current stock price (EUR 32), which is EUR 3.00. So the time value must be the remaining EUR 0.80. Easy peasy!

upvoted 0 times

...

Clay

5 months ago

I'm a bit confused here. If the option is in-the-money, doesn't that mean the time value is zero? Or am I missing something?

upvoted 0 times

...

Jolene

5 months ago

Ugh, options pricing is not my strong suit. Let me think this through step-by-step. Okay, the current premium is EUR 3.80 and the stock is trading at EUR 32, so the intrinsic value must be the difference, which is EUR 3.00. So the time value should be the remaining EUR 0.80.

upvoted 0 times

...

Ellen

5 months ago

Hmm, this looks like a classic options pricing question. I think I can handle this - I just need to remember the formula for time value.

upvoted 0 times

...

Elli

5 months ago

This looks like a tricky one. I'll need to carefully review the SFRA best practices to determine which option is the most appropriate.

upvoted 0 times

...

Roy

1 year ago

I think it's EUR 3.80, the whole premium

upvoted 0 times

...

Kerry

1 year ago

I believe the time value is EUR 3.00

upvoted 0 times

...

Arminda

1 year ago

I agree with Carin, it's EUR 0.80

upvoted 0 times

...

Carin

2 years ago

I think the time value is EUR 0.80

upvoted 0 times

...

Beth

2 years ago

I think it's EUR 3.80, the whole premium

upvoted 0 times

...

Victor

2 years ago

Haha, Fausto, you almost had me there! But the time value is the premium minus the intrinsic value, which is EUR 3.00. Nice try, though!

upvoted 0 times

Lon

1 year ago

Thanks for the clarification, I almost got confused there!

upvoted 0 times

...

Shalon

2 years ago

Yeah, the time value is EUR 3.00 because the option is in-the-money.

upvoted 0 times

...

Ellen

2 years ago

I thought it was EUR 3.80, but you're right, it's EUR 3.00.

upvoted 0 times

...

Yuonne

2 years ago

I believe the time value is EUR 3.00

upvoted 0 times

...

Yuriko

2 years ago

I agree with Celeste, it's EUR 0.80

upvoted 0 times

...

Fausto

2 years ago

Hold up, folks. Isn't the time value just the premium itself, since the option is in-the-money? I'm going with option B.

upvoted 0 times

Marvel

1 year ago

Option B is correct, the time value is equal to the premium in this case.

upvoted 0 times

...

Jutta

1 year ago

Yes, the time value is the premium, so option B is the right choice.

upvoted 0 times

...

Solange

1 year ago

I agree, the time value is the premium, so option B is correct.

upvoted 0 times

...

Lajuana

2 years ago

I think the time value is just the premium itself, so I'm going with option B.

upvoted 0 times

...

Jani

2 years ago

This one's a no-brainer. If the option is in-the-money, the time value is the premium minus the intrinsic value, which is EUR 3.00. Easy peasy!

upvoted 0 times

...

Remona

2 years ago

I agree with Audry. The time value is the amount the option is worth above its intrinsic value, which is EUR 3.00 in this case.

upvoted 0 times

Wilda

2 years ago

Yes, that's correct. The time value is the premium above the intrinsic value.

upvoted 0 times

...

Salome

2 years ago

I think the time value is EUR 3.00.

upvoted 0 times

...

Celeste

2 years ago

I think the time value is EUR 0.80

upvoted 0 times

...

Audry

2 years ago

Option C is the correct answer. The time value of an in-the-money option is the difference between the option premium and the intrinsic value, which in this case is EUR 3.00.

upvoted 0 times

Ettie

2 years ago

D) EUR 0.80

upvoted 0 times

...

Alex

2 years ago

C) EUR 3.00

upvoted 0 times

...

Karina

2 years ago

B) EUR 3.80

upvoted 0 times

...