Mergers and acquisitions: Difference between the market value
of a firm's stock
before and after it is taken over. If a firm is taken over at a stated per share
price in (say) two months, the stock's current market price
will show a discount
over the stated price. This discount will reduce as the takeover
date approaches, becoming zero on that date.
Options trading: Amount
by which the going market value
premium) of an option is above the amount realized
(called intrinsic value) if the option is exercised now.
In other words, time value
equals option premium
less its intrinsic value
. Buyers pay time value because they expect the option premium to increase in future due to an anticipated change
in the price of the underlying futures contract
. Time value, therefore, represents the value of the chance
the option over time. It declines as the option's expiry date
approaches, becoming zero on that date. Also called extrinsic value. See also time value of money.