The Intrinsic Value of an Option

question 50

Multiple Choice

The intrinsic value of an option

• A)is equal to the option premium.
• B)is the amount the option actually is worth if it is immediately exercised.
• C)is the amount the option is expected to be worth on its expiration date.
• D)is impossible to determine in the absence of information on the future prices of the underlying asset.

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Definitions:

Aggregate Supply

The overall quantity of products and services that companies in a country's economy intend to sell over a set duration.

Wealth Effect

The change in consumer spending and economic behavior that results from a change in perceived wealth, often due to asset price fluctuations.

Real Balances Effect

The change in consumption and savings behavior resulting from an alteration in purchasing power due to inflation or deflation.

Financial Assets

Economic resources or ownership rights that are intangible and represent a claim to future payments, such as stocks, bonds, or bank deposits.