Cheryl Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Cheryl 40,000 at-the-money European call options on the company's stock, which is currently trading at $55 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 7.4 percent. Use the Black-Scholes model to calculate the value of the stock options. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Value of option grant $ 30.83
Cheryl Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Cheryl 40,000 at-the-money European call options on the company's stock, which is currently trading at $55 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 7.4 percent. Use the Black-Scholes model to calculate the value of the stock options. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Value of option grant $ 30.83
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Problem 23-1 Employee Stock Options
Cheryl Levin is the chief executive officer of Mountainbrook Trading Company. The
board of directors has just granted Cheryl 40,000 at-the-money European call options
on the company's stock, which is currently trading at $55 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 7.4 percent. Use the Black-Scholes model to
calculate the value of the stock options. (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
Value of option
grant
$
30.83
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