The time value of a call option isI) the 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

Question

Quizplus · Accepted Answer

The time value of a call option is defined as the difference between the option's price and the intrinsic value (the value it would have if it were expiring immediately), which corresponds to choice I. It is also distinct from the traditional time value of money concept, which is captured in choice IV. Choices II and III do not accurately describe the time value of an option.

The Time Value of a Call Option IsI) the Difference