Intrinsic Value

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Intrinsic value (finance)

From Wikipedia, the free encyclopedia

This article is about the valuation of financial assets. For the philosophy of economic value, see Intrinsic theory of value.

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In finance, intrinsic value refers to the actual value of a company or stock determined through fundamental analysis without reference to its market value. It is also frequently called fundamental value. It is ordinarily calculated by summing the future income generated by the asset, and discounting it to the present value.

Contents

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* 1 Options

* 2 Equity

* 3 Real estate

* 4 See also

* 5 External links

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Options[edit source | editbeta]

An option is said to have intrinsic value if the option is in-the-money. When out-of-the-money, its intrinsic value is zero.

The intrinsic value for an in-the-money option is calculated as the absolute value of the difference between the current price (S) of the underlying and the strike price (K) of the option, floored to zero.

For a call option, It is the absolute difference of the intrinsic value and the strike price.

while for a put option

For example, if the strike price for a call option is USD $1 and the price of the underlying is USD 1.20, then the option has an intrinsic value of USD 0.20.

The total value of an option is the sum of its intrinsic value and its time value.

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Equity[edit source | editbeta]

See also: Valuation using discounted cash flows and John Burr Williams#Theory

In valuing equity, securities analysts may use fundamental analysis—as opposed to technical analysis—to estimate the intrinsic value of a company. Here the "intrinsic"...