The intrinsic value of an 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 difference between the price of the underlying asset and the strike price of the option.
D)Will be negative if the time value of the option is negative.

Question

Quizplus · Accepted Answer

The intrinsic value of an option is the difference between the price of the underlying asset and the strike price of the option. It can be positive, zero, or negative. It reflects the immediate economic value of the option if it were exercised at the current time. Options that are out-of-the-money have intrinsic value of zero. Options that are in-the-money have intrinsic value equal to the difference between the underlying asset price and the strike price. Options that are at-the-money have intrinsic value equal to zero.

The Intrinsic Value of an Option