Since the share is able to purchased with the option for $40 and the expected market price at the end of the option period will be $42, the value of the option is the difference between these amounts, or $2. If the price of the option is more than $2, a person would be better off buying the share for $42 than buying the option and then paying $40 for the share with the option.
$4 is the market value of the option at the beginning of the 6 months. The question is about the value of the option at the end of the six months.
Since the market price is higher than the call price of the option, the option does have some value. See the correct answer for a complete explanation.
This answer is incorrect because at a price of the option of more than $2, the potential shareholder would be better off buying the share in the market for $42 than paying $6 for the option and then paying $40 for the share with the option. See the correct answer for a complete explanation.
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