Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Basic Finance Expert

Finance


Home >> Basic Finance

You are the senior assistant to the Chairman of the Board of Hi-Teck Inc. In order to attract the chief operating officer of his choice from another firm, the Chairman offers the following incentive supplement to her base salary package:

  • 2% of any price appreciation in the price of the stock up to $60 per share;
  • 3% of any price appreciation above $60 but less than $75 per share;
  • 4% of any price appreciation above $75 per share;

The price appreciation is to be computed with respect to the share price exactly 3 years from now, and there is no early payment of the supplement. The aggregate value of the supplement is based on the price appreciation of 10 million shares. The annual (not continuously compounded) risk free rate is 10% and the stock volatility is 50% annualized. The current price of the stock is $55.

Use the Black Scholes formula to value the supplement. Should you be concerned in your calculations that the new chief operating officer might increase the expected rate of price appreciation by wise actions?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92073098
  • Price:- $20

Priced at Now at $20, Verified Solution

Have any Question?


Related Questions in Basic Finance

What are the differences between a cash budget and an

What are the differences between a cash budget and an operating budget and Why might both be important to a small business?

Initial outlay is 16853year 1 5625year 2 5504year 3

Initial outlay is $16,853 Year 1 $5,625 Year 2 $5,504 Year 3 $5,892 Year 4 $8,851 What is the discounted payback period? The discount rate is 10%...Round answer to two decimal points

Facebooks sales were 7878million in 2013 in 2017sales were

Facebook's sales were $7,878million in 2013. In 2017,sales were $41,050 million. What was Facebook's annual growth rate in sales during that time?

Question - a particular securitys equilibrium rate of

Question - A particular security's equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real interest rate is 3.5 percent. The security's liquidity risk premium ...

What would be examples of valid selection methods used by

What would be examples of valid selection methods used by the human resource department to ensure selecting the appropriate candidate for a job.

Discuss the term fisher effect suppose the quoted rate 65

Discuss the term Fisher Effect. Suppose the quoted rate 6.5 percent and the expected inflation is 3.2 percent. What would you expect the real rate of interest to be?

In 1896 the first us open golfnbspchampionship was held the

In 1896, the first U.S. Open Golf Championship was held. The winner's prize money was $160. In 2012, the winner's check was $1,360,000. Requirement 1: What was the annual percentage increase in the winner's check over th ...

A common stock will pay a 320 dividend expected to grow at

A common stock will pay a $3.20 dividend, expected to grow at a constant rate of 2%. If the stock sells for $27, what is the return?

The common stock of the burger hut is selling for 1827 a

The common stock of The Burger Hut is selling for $18.27 a share. The company has earnings per share of $0.73 and a book value per share of $5.03. What is the market-to-book ratio? Round your answer to the nearest hundre ...

Barely heroes corporation has bonds on the market with 145

Barely Heroes Corporation has bonds on the market with 14.5 years to maturity, an YTM of 9 percent, and a current price of $850. The bonds make semiannual payments. What must the coupon rate be on Barely Heroes' bonds?

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As

Follow Us

© Copyright 2013-14 mywordsolution.com All rights reserved