When Is an Option In-The-Money

question 21

Essay

When is an option in-the-money?

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Definitions:

Maturity Value

The amount payable to the holder of a financial instrument at its maturity date, including the principal and any remaining interest.

Stated Interest Rate

The annual interest rate declared on a loan or financial instrument, not including any fees or compounding of interest.

Effective Yield

The total yield of a bond, taking into account annual interest payments and the bond’s price fluctuation.

Fair Value Option

An accounting choice that allows companies to report financial assets and liabilities at their fair values, with changes in fair value recognized through profit or loss.