71.In reality, an option's value will equal its intrinsic value only at expiration.At all other times, the option's premium or price will exceed its intrinsic value.A major reason for this is/are _____________. 71 through 95---not in the chapter-they are part of the learning extension.
Editing is needed if these items are to be part of a separate test bank for Chap 11's Learning Extension.

Question

Quizplus · Accepted Answer

The time remaining until expiration is a major factor in determining the premium or price of an option. As time passes, the likelihood of the option being profitable decreases, and thus the premium decreases. This is known as time decay or theta decay. Therefore, an option's premium will exceed its intrinsic value due to the influence of time.

71In Reality, an Option's Value Will Equal Its Intrinsic Value