2.12. In November 2007 the companyWesfarmers purchased the Coles–Myer group. As part of the settlement, Coles–Myer shares were transformed into Wesfarmers Partially Protected Shares (WPPS). With a Floor Price specified to be $36, a Cap Price of $45, and the Lapse Date meaning the date four years from the Issue Date, the specifications of theWPPS included the following: On a Lapse Date determined by Wesfarmers, 1. each Partially Protected Share will be reclassified into one Ordinary Share;

and 2. subject to clause 8, each Partially Protected Shareholder will be issued an additional number of Ordinary Shares for each Partially Protected Share held on that date, in accordance with the following:

(a) if the MVWAP is equal to or more than the Cap Price, no additional Ordinary Shares;

(b) if the MVWAP is equal to or less than the Floor Price, 0.25 Ordinary Shares; and

(c) if the MVWAP is between the Floor Price and the Cap Price, the number of Ordinary Shares calculated using the following formula:

Cap Price MVWAP

−1 where MVWAP means the VWAP for the period of two months immediately preceding, but not including, the date of the Lapse Notice.

do the following. Translate the above WPPS conditions into an expiry condition for the Black–Scholes equation (a condition that depends upon the sale price).

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40 40 30 30 20 20 (a) 40 40 30 20 20 (b) 10 10 10 0 0 (c) 60 59 50 100 56 50 100 option value C 40 option value C 20 20 50 40 30 20 10 Ng (d) 50 asset price S 100 0 50 100 asset price S