The Time Value of an Option Is

question 28

Multiple Choice

The time value of an option is
I.he difference between the option's price and the value it would have if it were expiring immediately.
II.the same as the present value of the option's expected future cash flows.
III.the difference between the option's price and its expected future value.
IV.different from the usual time value of money concept.

• A) I
• B) I and II
• C) II and III
• D) II
• E) I and IV

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Definitions:

Probability

A measure quantifying the likelihood that an event will occur, expressed on a scale from 0 to 1.

Uniform Distribution

A type of probability distribution in which all outcomes are equally likely over a given range.

Waiting Time

The duration of time that elapses while waiting for a particular event or service to occur.

Continuous Random Variable

A variable that can take on an infinite number of values within a given range, where the outcomes cannot be counted and can only be described using intervals.