Asked by Michael Morales on May 06, 2024
Verified
Which of the following is a true statement?
A) The actual value of a call option is greater than its intrinsic value prior to expiration.
B) The intrinsic value of a call option is always greater than its time value prior to expiration.
C) The intrinsic value of a call option is always positive prior to expiration.
D) The intrinsic value of a call option is greater than its actual value prior to expiration.
Intrinsic Value
The inherent worth of an asset, independent of its market price.
Actual Value
The true, inherent, or fair value of an asset, reflecting its genuine worth as opposed to market price or cost.
Time Value
The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
- Differentiate between the inherent worth and the temporal value within the realm of option pricing.
Verified Answer
DM
Damaris MartinezMay 11, 2024
Final Answer :
A
Explanation :
The actual value of a call option (often referred to as its market price) can be greater than its intrinsic value prior to expiration because it includes time value, which accounts for the potential of the option to increase in value before it expires.
Learning Objectives
- Differentiate between the inherent worth and the temporal value within the realm of option pricing.
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