High School

An investor purchases a British pound 160 put at 4 when the British pound is at 157. What is the intrinsic value of the option?

Answer :

Final answer:

The intrinsic value of a British pound 160 put option when the pound is at 157 is 3. It is calculated as the strike price (160) minus the market price (157) for a put option that is in the money.

Explanation:

The question refers to the intrinsic value of an options contract. In this case, we're looking at an investor who bought a British pound 160 put option when the British pound was at 157. Intrinsic value refers to the value that the option inherently has, which is the difference between the strike price and the market price when the option is in the money.

For a put option, this calculation is the strike price minus the market price, as long as the former is greater than the latter. Here, the strike price is 160, and the market price is 157. Thus, the intrinsic value of the option is 160 - 157 = 3.

The intrinsic value of an option is the difference between the strike price of the option and the current market price of the underlying asset. In this case, the investor purchased a British pound 160 put option at 4 when the British pound is at 157. The strike price of the option is 160, and the current market price of the British pound is 157. Therefore, the intrinsic value of the option is 160 - 157 = 3.