Company X is going to issue 2,000 stock option (200,000 shares) on its common stock to...
Company X is going to issue 2,000 stock option (200,000 shares) on its common stock to the top executives today. The exercise price on the stock options is $30 per share. The options will expire in 15 years. If past experience dictates that the executives will exercise their option by the 12th year on average and that the variance of stock returns is .25 (annual), calculate the value of these stock options assuming a dividend yield of 1% and a risk free rate of 4%. The stock is trading at $20 per share. Find the value of the of the employee stock options using the Black Scholes Model.
Homework Answers
Black-Scholes model is a pricing model used to determine the fair price value for a call or a put option based on six variables which includes volatility, type of option, underlying stock price, time, strike price, and risk-free rate.
Based on the data given, the value of the employee stock options are calculated as per Black Scholes Model:
Call Option price: $6.64
Value of stock options: 2,000 * $6.64 = $13,280
Formulae:
C=StN(d1)−Ke−rtN(d2)where:d1=σs tlnKSt+(r+2σv2) tandd2=d1−σs twhere:C=Call option priceS=Current stock (or other underlying) priceK=Strike pricer=Risk-free interest ratet=Time to maturityN=A normal distribution
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Company X is going to issue 2,000 stock option (200,000 shares)
on its common stock to...
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Exercise 138 Prepare the necessary entries from 1/1/17-2/1/19 for the following events using the fair value...
Exercise 138
Prepare the necessary entries from 1/1/17-2/1/19 for the
following events using the fair value method. (Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the
amounts.)
1.
On 1/1/17, the stockholders adopted a stock option plan for top
executives whereby each might receive rights to purchase up to
15,000 shares of common stock at $35 per share....
On December 31, 2018, Free Company granted 15,000 options to its executive's to purchase 15,000 shares...
On December 31, 2018, Free Company granted 15,000 options to its executive's to purchase 15,000 shares of the company's $10 par common stock at an option price of $30 per share. The market value of the stock at 12/31/2018 was $30 per share. The Black-Scholes option pricing model determined that each option had a fair value of $7. The options become exercisable on January 1, 2022, and represent compensation for executives' services over a three-year period beginning January 1, 2019....
Prepare the necessary entries from 1/1/20-2/1/22 for the following events using the fair value method. (Credit...
Prepare the necessary entries from 1/1/20-2/1/22 for the
following events using the fair value method. (Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the
amounts.)
1.
On 1/1/20, the stockholders adopted a stock option plan for top
executives whereby each might receive rights to purchase up to
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Gary Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Mr. Levin 48,000 at-the-money European call options on the company's stock, which is currently trading at $35 per share. The stock pays no dividends. The options will expire in five years and the standard deviation of the returns on the stock is 56 percent. Treasury bills that mature in five years currently yield a continuously compounded interest rate of 5.5 percent. a....
Exercise 138
Prepare the necessary entries from 1/1/17-2/1/19 for the
following events using the fair value method. (Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the
amounts.)
1.
On 1/1/17, the stockholders adopted a stock option plan for top
executives whereby each might receive rights to purchase up to
15,000 shares of common stock at $35 per share....
On December 31, 2018, Free Company granted 15,000 options to its executive's to purchase 15,000 shares of the company's $10 par common stock at an option price of $30 per share. The market value of the stock at 12/31/2018 was $30 per share. The Black-Scholes option pricing model determined that each option had a fair value of $7. The options become exercisable on January 1, 2022, and represent compensation for executives' services over a three-year period beginning January 1, 2019....
Prepare the necessary entries from 1/1/20-2/1/22 for the
following events using the fair value method. (Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the
amounts.)
1.
On 1/1/20, the stockholders adopted a stock option plan for top
executives whereby each might receive rights to purchase up to
16,000 shares of common stock at $45 per share. The par...
3. On January 1, 2018, Norman Corporation granted compensatory stock options for 75,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black Scholes option pricing model determines total compensation expense to be $825.000 The options are exercisable beginning January 1, 2020, provided those key employees are still in Norman's employ at the time...
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