Explanation

For a call option at expiration, the value is given by:

Call Value = Max(0, S - K)

Where:

• S = Price of the underlying at expiration
• K = Strike price

Given:

• Call premium paid = $24.70 (this is the cost to buy the option, not relevant for expiration value calculation)
• Strike price (K) = $650
• Call value at expiration = $47.60

We need to solve for S:

$47.60 = Max(0, S - $650)

Since the call has positive value ($47.60 > 0), we know S > K:

$47.60 = S - $650

S = $650 + $47.60 = $697.60

Therefore, the price of the underlying at expiration is $697.60.

Why not the other options:

• A. $602.40: This would result in a call value of Max(0, 602.40 - 650) = Max(0, -47.60) = $0, not $47.60
• B. $672.90: This would result in a call value of 672.90 - 650 = $22.90, not $47.60

Key Concept: The premium paid ($24.70) is a sunk cost and doesn't affect the intrinsic value calculation at expiration. Only the strike price and underlying price matter for determining the option's payoff.