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 ignores interest cost and option cost. However, it does consider the exercise cost as a part of the option premium. Therefore, option cost is an additional cost that is ignored in the intrinsic value approach.

The Intrinsic Value Approach Ignores Two Types of Costs