What defines the intrinsic value of an asset?

The intrinsic value of an asset is fundamentally determined by its ability to generate future cash flows, which are evaluated by discounting them back to their present value using an appropriate discount rate. This approach recognizes that the value of money diminishes over time due to factors like inflation and opportunity cost. The cash flow stream represents the income an investor expects to derive from the asset over its lifetime, and discounting these cash flows reflects their present worth, providing a more accurate measure of what the asset should be worth based on its financial performance.

The other options focus on different aspects of market dynamics or profitability that do not directly reflect the intrinsic value. For instance, current market price reflects supply and demand conditions rather than an asset's fundamental worth. Profit generated by the asset is relevant but does not encompass the full potential of future cash flows. Lastly, liquidity pertains to how quickly and easily an asset can be converted into cash without significantly affecting its price, which is unrelated to its intrinsic value defined by future cash flows.