Intrinsic Value of European Call Option

Hard Derivative Pricing And Valuation Options

A trader purchases a European call option on a stock with a strike price of $50 that expires in 6 months. The stock is currently priced at $48, and the risk-free rate is 3% per annum. The call option is priced at $2.50 u\sing the Black-Scholes model.

Assuming volatility is cons\tant, which of the following statements is true about the call option's pricing at expiration if the stock price is $55?

The call option will expire worthless.

The intrinsic value of the call option at expiration will be $5.

The time value of the call option at expiration will be $2.50.

Hint

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