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| {{About|the valuation of financial assets|the philosophy of economic value|Intrinsic theory of value}}
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| {{unreferenced|date=January 2011}}
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| In [[finance]], '''intrinsic value''' refers to the [[value (economics)|value]] of a company, [[stock]] or a [[currency]] determined through [[fundamental analysis]] without reference to its [[market value]].<ref>{{cite web|title = An Introduction to Fundamental Analysis and the US Economy|publisher = InformedTrades.com|date = 2008-02-14|url = http://www.informedtrades.com/13036-introduction-fundamental-analysis-us-economy.html#post13168|accessdate = 2009-07-27}}</ref> It is also frequently called '''fundamental value'''. It is ordinarily calculated by summing the [[discounting|discounted]] future income generated by the asset to obtain the [[present value]].
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| ==Options==
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| An [[option (finance)|option]] is said to have intrinsic value if the option is [[in-the-money]]. When [[out-of-the-money]], its intrinsic value is ''zero''.
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| 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.
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| :<math>IV_{\mathrm{out-of-the-money}}= 0 </math>
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| :<math>IV_{\mathrm{in-the-money}}=\left \vert S-K \right \vert = \left \vert K-S \right \vert</math>
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| 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.
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| The total value of an option is the sum of its intrinsic value and its [[Option time value|time value]].
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| ==Equity==
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| {{See also|Valuation using discounted cash flows|John Burr Williams#Theory}}
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| In valuing [[Stock|equity]], [[securities analyst]]s may use [[fundamental analysis]]—as opposed to [[technical analysis]]—to estimate the intrinsic value of a company. Here the "intrinsic" characteristic considered is the expected [[cash flow]] production of the company in question. Intrinsic value is therefore defined to be the [[present value]] of all expected future net [[cash flow]]s to the company; it is calculated via [[discounted cash flow]] valuation.
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| An alternative, though related approach, is to view intrinsic value as the value of a business' ongoing operations, as opposed to its accounting based [[book value]], or break-up value. [[Warren Buffett]] is known for his ability to calculate the intrinsic value of a business, and then buy that business when its price is at a discount to its intrinsic value.
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| ==Real estate==
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| In valuing [[real estate]], a similar approach may be used. The "intrinsic value" of real estate is therefore defined as the net [[present value]] of all future net [[cash flow]]s which are foregone by buying a piece of real estate instead of renting it in perpetuity. These cash flows would include rent, inflation, maintenance and property taxes. This calculation can be done using the [[Gordon model]].
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| == See also ==
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| *[[Net realizable value]]
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| *[[Option time value]]
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| *[[Option (finance)]]
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| *[[Expected value]]
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| ==References==
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| {{reflist}}
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| ==External links==
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| * [http://www.investopedia.com/terms/i/intrinsicvalue.asp Investopedia]
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| * http://www.svtuition.org/2014/01/intrinsic-value-analysis.html
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| {{Derivatives market}}
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| {{DEFAULTSORT:Intrinsic Value (Finance)}}
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| [[Category:Derivatives (finance)]]
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