The Time Value of Money Is Based on the Idea

question 8

Multiple Choice

The time value of money is based on the idea that:

• A)The value of money in the future equals the interest received in the present.
• B)The value of money in the future will be greater than an amount available today.
• C)The value of money at present over some length of time will be reduced by inflation.
• D)The future value of money will become the current value as time passes.

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Definitions:

Time To Expiration

The remaining period until an option contract or other derivative expires, after which it becomes worthless.

Stock Price

The cost of purchasing a share of a company, determined by the supply and demand in the stock market.

Time Value

The concept in finance that money available now is worth more than the same amount in the future due to its potential earning capacity.

In-The-Money

A term describing an options contract that has intrinsic value; for a call, when the underlying asset's price is above the strike price, and for a put, when it's below.