17. XYZ Corp. compensates executives with 10-year European call options, granted at the money. If there is

Question:

17. XYZ Corp. compensates executives with 10-year European call options, granted at the money. If there is a significant drop in the share price, the company’s board will reset the strike price of the options to equal the new share price. The maturity of the repriced option will equal the remaining maturity of the original option. Suppose that σ = 30%, r = 6%, δ = 0, and that the original share price is $100.

a. What is the value at grant of an option that will not be repriced?

b. What is the value at grant of an option that is repriced when the share price reaches $60?

c. What repricing trigger maximizes the initial value of the option?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 100% (QA)

Answered By

Asim farooq

I have done MS finance and expertise in the field of Accounting, finance, cost accounting, security analysis and portfolio management and management, MS office is at my fingertips, I want my client to take advantage of my practical knowledge. I have been mentoring my client on a freelancer website from last two years, Currently I am working in Telecom company as a financial analyst and before that working as an accountant with Pepsi for one year. I also join a nonprofit organization as a finance assistant to my job duties are making payment to client after tax calculation, I have started my professional career from teaching I was teaching to a master's level student for two years in the evening. My Expert Service Financial accounting, Financial management, Cost accounting, Human resource management, Business communication and report writing. Financial accounting : • Journal entries • Financial statements including balance sheet, Profit & Loss account, Cash flow statement • Adjustment entries • Ratio analysis • Accounting concepts • Single entry accounting • Double entry accounting • Bills of exchange • Bank reconciliation statements Cost accounting : • Budgeting • Job order costing • Process costing • Cost of goods sold Financial management : • Capital budgeting • Net Present Value (NPV) • Internal Rate of Return (IRR) • Payback period • Discounted cash flows • Financial analysis • Capital assets pricing model • Simple interest, Compound interest & annuities

4.40+ 65+ Reviews 86+ Question Solved

Related Book For book-img-for-question