The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments


Subject:  Time Premium Date:  3/21/2013  1:44 AM
Author:  globalist2013 Number:  34836 of 35623

In finance, the time value (TV) (extrinsic or instrumental value) of an option is the premium a rational investor would pay over its current exercise value (intrinsic value), based on the probability it will increase in value before expiry. For an American option this value is always greater than zero in a fair market, thus an option is always worth more than its current exercise value.

Bonds aren’t truly options, though they share many features with them. One of these features is that a bond can trade at a premium to its value at maturity -- assuming it will mature -- and therein l