The intrinsic value approach ignores two types of costs:
A) Interest cost and opportunity cost
B) Opportunity cost and exercise cost
C) Interest cost and option cost
D) Carrying cost and interest cost

Question

Quizplus · Accepted Answer

The intrinsic value approach only considers the current market price of the underlying asset and the exercise price in determining an option's value. It does not take into account interest costs associated with borrowing money to purchase the option or option costs associated with purchasing the option in the first place. However, it is important to consider the option cost (the premium paid for the option) when evaluating the overall profitability of an investment strategy.

The Intrinsic Value Approach Ignores Two Types of Costs