The time value of an option is equal to:
A) The difference between the option's market price and its intrinsic value.
B) The difference between the option's intrinsic value and its market price.
C) The risk-free interest rate in the economy.
D) The net present value of the option's cash flows.
E) The net present value of the option's cash flows, discounted at the risk-free interest rate.

Question

Quizplus · Accepted Answer

The time value of an option is the difference between the option's market price and its intrinsic value. This reflects the additional value attributed to the possibility of future price movements before the option expires.

The Time Value of an Option Is Equal To