Chapter 03 · Section 3.1

The components of the premium

What are the two major components of the premium?

• a) Intrinsic value and Time to expiration.
  No. The intrinsic value is one of the two components of the premium. However, time to expiration is only one of three factors which influence the time value.
  b) Intrinsic value and Price of the underlying asset.
  c) Time to expiration and Exercise price.
  d) Time value and Intrinsic value.

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