Qusastion 1 CALL Tiger Wood plc is considering the introduction of an executive share option scheme. The scheme would be offered to all middle managers of the company. It is proposed for the first two years that all middle managers are offered options to purchase 2,000 shares at a price of 350 pence per share after the options have been held for two year. Assume that the tax authorities allow the exercise of such options after they have been held for two years. If the options are not exercised at that time they will lapse. t=2 The company's shares have a current market price of 370 pence. The company's share price has experienced a standard deviation of 30% during the last year. The short-term risk free interest rate is 5% per annum. Required (1) Determine the value of the share option for the middle managers (assumed no dividend payout during the option period). (ii) Given the same five determinants, would it be more valuable to the middle managers if the offer were put option instead of call option? What would the value of the share option be, if Tiger Wood regularly gave annual dividend of 20 pence and it has just distributed an annual dividend of 20 pence. (ie 370 pence is current ex-dividend share price) Qusastion 1 CALL Tiger Wood plc is considering the introduction of an executive share option scheme. The scheme would be offered to all middle managers of the company. It is proposed for the first two years that all middle managers are offered options to purchase 2,000 shares at a price of 350 pence per share after the options have been held for two year. Assume that the tax authorities allow the exercise of such options after they have been held for two years. If the options are not exercised at that time they will lapse. t=2 The company's shares have a current market price of 370 pence. The company's share price has experienced a standard deviation of 30% during the last year. The short-term risk free interest rate is 5% per annum. Required (1) Determine the value of the share option for the middle managers (assumed no dividend payout during the option period). (ii) Given the same five determinants, would it be more valuable to the middle managers if the offer were put option instead of call option? What would the value of the share option be, if Tiger Wood regularly gave annual dividend of 20 pence and it has just distributed an annual dividend of 20 pence. (ie 370 pence is current ex-dividend share price)