Which of the following statements is incorrect?
A) The value of an option at expiration is its intrinsic value.
B) The longer the time to expiration, the larger the options intrinsic value.
C) The market value of an option is the sum of its intrinsic value and time value.
D) Before expiration, the value of an option will exceed its intrinsic value because of time value.

Question

Quizplus · Accepted Answer

The intrinsic value of an option is determined by the difference between the underlying asset's price and the strike price of the option, not by the time to expiration. The statement that the longer the time to expiration, the larger the option's intrinsic value, is incorrect. Time affects the option's time value, not its intrinsic value.

Which of the Following Statements Is Incorrect