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On the year of January 2, 2012, Jones Company purchases a call option for $450 on Merchant common stock. The call option provides Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2012 (the intrinsic value is thus $0). On March 31, 2012, the market price for Merchant stock is $60 per share, and the time value of the option will be $200.

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Category:- Basic Finance
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