Determine the intrinsic value and time premium, Accounting Basics

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Determine the intrinsic value and time premium

Response to the following questions:

a. Suppose that the price of the underlying is $40 and that the option price is $5. If the exercise price for a put option is $50, what is the intrinsic value and the time premium for this option?

b. Suppose that the price of the underlying is $40 and that the option price is $5. If the exercise price for a call option is $50, what is the intrinsic value and the time premium for this option?

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Accounting Basics: Determine the intrinsic value and time premium

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Accounting Basics: Determine the intrinsic value and time premium

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