Pricing and Valuation of Options; Put-Call Parity: practice question

Correct answer: C

Working: Intrinsic value = max(0, X − S) = 36.00 − 33.40 = $2.60. Time value = premium − intrinsic = 4.20 − 2.60 = $1.60.

Explanation: C is correct. Time value is the part of the premium above intrinsic value: the put is $2.60 in the money, so time value = 4.20 − 2.60 = $1.60, reflecting the chance the put finishes further in the money before expiry. A is incorrect because $2.60 is the intrinsic value itself — the amount by which the strike exceeds the stock price — not the time value. B is incorrect because the entire premium equals time value only for an out-of-the-money option; here part of the $4.20 is intrinsic and only $1.60 is time value.