In its 10-Q dated February 4, 2010, LLL, Inc., had outstanding employee stock options representing over 280 million shares of its stock. LLL accountants estimated the value of these options using the Black-Scholes-Merton formula and the following assumptions:

S = current stock price = $29

K = option strike price = $31.43

r = risk-free interest rate = 0.055

= stock volatility = 0.23

T = time to expiration = 3.5 years

What was the estimated value of these employee stock options per share of stock? (Note: LLL pays no dividends.) (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Employee stock options

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In its 10-Q dated February 4, 2010, LLL, Inc., had outstanding employee stock options representing over 278 million shares of its stock. LLL accountants estimated the value of these options using the Black-Scholes-Merton formula and the following assumptions: S = current stock price = $28.2 K = option strike price = $30.63 r = risk-free interest rate = 0.032 = stock volatility = 0.24 T = time to expiration = 3.5 years What was the estimated value of these employee stock options per share of stock? (Note: LLL pays no dividends.) (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Employee stock options $ 5.35 + 1% Explanation In( 28.2/30.63) + (0.032 +0.242/2) * 3.5 di 0.24 X 73.5 0.289849 d2 = 0.29 -0.24 3.5 = -0.159 These standard normal probabilities are given: N(1) = 0.614034 N(d) = 0.436776 Calculating the price of the employee stock options yields: ESO = ($28.20.614034) ($30.63 x -0.032 * 3.5 x 0.436776) ESO = $5.35