Determining the option exercise value, Finance Basics

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Determining the option exercise value

The exercise price on one of ORNE Corporation's put options is $30 and the price of the underlying stock is $25. The option will expire in 25 days. The option is currently selling for $5.50.

a. Calculate the option's exercise value.

b. Calculate the value of the premium over and above the exercise value? Why would an investor pay more than the exercise value for the option

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Finance Basics: Determining the option exercise value

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