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Extrinsic Value

Extrinsic value refers to the premium that investors are willing to pay for things like time, volatility or other market conditions. If a stock option, for example, has intrinsic value, that means exercising the option would result in an immediate profit. Extrinsic value, on the other hand, represents the premium applied to the same stock option by factors such as time until expiration, expected volatility and market sentiment. So, even if a stock option has no intrinsic value it may still have extrinsic value since the price could change before expiration. Intangible assets also possess extrinsic value beyond their intrinsic worth. For example, a company’s brand reputation can influence consumer perception, market share and its bottom line. Investors may assign a premium to a company’s value based on the strength of its brand, reflecting the extrinsic value associated with this intangible asset. The measurement of extrinsic value varies depending on the type of financial instrument involved.