The intrinsic value of an option:
A) is the amount the investor believes the option will be worth on the expiration date.
B) is the amount the option is worth if it is exercised immediately.
C) is equal to price of the underlying asset.
D) cannot be determined without knowing the future price of the underlying asset.

Question

Quizplus · Accepted Answer

The intrinsic value of an option is the difference between the current price of the underlying asset and the strike price of the option, if it's in the money. Therefore, it only applies if the option is exercised immediately. The other options are incorrect because the intrinsic value is not based on the investor's beliefs and it's not equal to the price of the underlying asset. Also, it can be calculated based on the current price of the underlying asset, without knowing the future price.

The Intrinsic Value of an Option