Which of the Following Best Describes the Intrinsic Value of an Option

question 8

Multiple Choice

Which of the following best describes the intrinsic value of an option?

• A) The value it would have if the owner were forced to exercise immediately
• B) The Black-Scholes-Merton price of the option
• C) The lower bound for the option's price
• D) The amount paid for the option

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Definitions:

Variable Costs

Expenditures that vary in a direct manner with the volume of output or sales.

Straight-Line Depreciation

A mechanism for spreading the expenditure of a tangible asset over its longevity in equal annual fractions.

Interest Payments

The regular payments made by a borrower to a lender as compensation for the use of borrowed money, usually calculated as a percentage of the outstanding principal.

CCA Class

In the context of Canadian taxation, refers to the categorization of depreciable property for the purpose of calculating capital cost allowance (tax deductions for depreciation).