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Calculate the intrinsic value and the time value

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Reference no: EM133046974

Question - On January 3, Noel Ltd. purchases a call option for $1700 from Lucy Corp. to buy 1,000 Rerun Inc. shares at an exercise price of $50 per share. The option expires May 1. At this time the current market price of Rerun shares is also $50 On March 31 (Noel year end), the market value of the Rerun shares is $58 and the fair value of the option has increased to $14,000. On April 15, Noel takes delivery of (buys) the Rerun shares as agreed in the option contract. The market value of Quail's shares is now $60.

a. Calculate the intrinsic value and the time value of this option at 1. January 3 and 2. March 31.

b. Prepare general journal entries for the following dates: 1. January 3 2. March 31 3. April 15.

Reference no: EM133046974

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