The difference between price of underlying asset and exercise price of option is classified as __________?
Correct answer: B. intrinsic value of option
- A. extrinsic value of European option
- B. intrinsic value of option
- C. extrinsic value of option
- D. intrinsic value of European option
Explanation
Intrinsic value is the amount an option is immediately in the money, based on the relationship between the underlying asset price and the exercise price. Extrinsic value instead reflects time value and other expectations beyond that immediate exercise value.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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