The intrinsic value of a call option:
A) is the difference between the option price and the interest rate.
B) must be less than or equal to zero.
C) is the greater of zero or the difference between the price of the underlying asset and the strike price.
D) will be negative if the time value of the option is negative.

Question

Quizplus · Accepted Answer

The intrinsic value of a call option is determined as the greater of zero and the difference between the underlying asset's price and the option's strike price. Therefore, choice C is correct. Choice A is incorrect as interest rates are not considered while determining the intrinsic value of a call option. Choice B is incorrect as the intrinsic value must always be greater than or equal to zero. Choice D is incorrect as the intrinsic value can never be negative, irrespective of whether the time value of the option is negative or not.

The Intrinsic Value of a Call Option