Suppose your employer offers you a choice between a $5,000 bonus and 100 shares of the company's stock. Whichever one you choose will be awarded today. The stock a. If you receive the stock bonus and you are free to trade it, which form of the bonus should you choose? What is its value? b. Suppose that if you receive the stock bonus, you are required to hold it for at least one year. What can you say about the value of the stock bonus now? What will your decision depend on? currently trading at $63.00 per share. a. Suppose that if you receive the stock bonus, you are free to trade it. Which form of the bonus should you choose? What is its value? If you are free to trade the stock, the value of the stock bonus today is $. (Round to the nearest dollar.) The value of the cash bonus is S. (Round to the nearest dollar.) Which bonus should you choose? (Select from the drop-down menu.) You should choose the b. Suppose that if you receive the stock bonus, you are required to hold it for at least one year. What can you say about the value of the stock bonus now? What will your decision depend on? (Choose all the answers that apply) O A. You might decide that it is better to take the $5,000 in cash than to wait for the uncertain value of the stock in one year. This would be especially true if you believed you could invest the $5,000 today in another equally risky asset that would be worth more than the stock one year from now. O B. Since you work for this company you are considered to be a stakeholder. This implies that, for you, the company's shares are worth more than $6,300 today. Therefore, you should take the stock bonus. O c. The stock's value will depend on what you expect it to be worth in one year, as well as how you feel about the risk involved. There is no clear-cut answer to which alternative is best, because taking the stock today and having to hold it for a year involves risk. O D. Because you could buy the stock today for $6,300 if you wanted to, the value of the stock bonus cannot be more than $6,300. But if you are not allowed to sell the company's stock for the next year, its value to you could be less than $6,300.

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
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options for part a drop down: cash bonus or stock bonus 

Suppose your employer offers you a choice between a $5,000 bonus and 100 shares of the company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $63.00 per share.
a. If you receive the stock bonus and you are free to trade it, which form of the bonus should you choose? What is its value?
b. Suppose that if you receive the stock bonus, you are required to hold it for at least one year. What can you say about the value of the stock bonus now? What will your decision depend on?
a. Suppose that if you receive the stock bonus, you are free to trade it. Which form of the bonus should you choose? What is its value?
If you are free to trade the stock, the value of the stock bonus today is $ . (Round to the nearest dollar.)
The value of the cash bonus is $. (Round to the nearest dollar.)
Which bonus should you choose? (Select from the drop-down menu.)
You should choose the
b. Suppose that if you receive the stock bonus, you are required to hold it for at least one year. What can you say about the value of the stock bonus now? What will your decision depend on? (Choose all the answers that apply)
A. You might decide that it is better to take the $5,000 in cash than to wait for the uncertain value of the stock in one year. This would be especially true if you believed you could invest the $5,000 today in another equally risky asset that
would be worth more than the stock one year from now.
B. Since you work for this company you are considered to be a stakeholder. This implies that, for you, the company's shares are worth more than $6,300 today. Therefore, you should take the stock bonus.
C. The stock's value will depend on what you expect it to be worth in one year, as well as how you feel about the risk involved. There is no clear-cut answer to which alternative is best, because taking the stock today and having to hold it for
a year involves risk.
D. Because you could buy the stock today for $6,300 if you wanted to, the value of the stock bonus cannot be more than $6,300. But if you are not allowed to sell the company's stock for the next year, its value to you could be less than
$6,300.
Transcribed Image Text:Suppose your employer offers you a choice between a $5,000 bonus and 100 shares of the company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $63.00 per share. a. If you receive the stock bonus and you are free to trade it, which form of the bonus should you choose? What is its value? b. Suppose that if you receive the stock bonus, you are required to hold it for at least one year. What can you say about the value of the stock bonus now? What will your decision depend on? a. Suppose that if you receive the stock bonus, you are free to trade it. Which form of the bonus should you choose? What is its value? If you are free to trade the stock, the value of the stock bonus today is $ . (Round to the nearest dollar.) The value of the cash bonus is $. (Round to the nearest dollar.) Which bonus should you choose? (Select from the drop-down menu.) You should choose the b. Suppose that if you receive the stock bonus, you are required to hold it for at least one year. What can you say about the value of the stock bonus now? What will your decision depend on? (Choose all the answers that apply) A. You might decide that it is better to take the $5,000 in cash than to wait for the uncertain value of the stock in one year. This would be especially true if you believed you could invest the $5,000 today in another equally risky asset that would be worth more than the stock one year from now. B. Since you work for this company you are considered to be a stakeholder. This implies that, for you, the company's shares are worth more than $6,300 today. Therefore, you should take the stock bonus. C. The stock's value will depend on what you expect it to be worth in one year, as well as how you feel about the risk involved. There is no clear-cut answer to which alternative is best, because taking the stock today and having to hold it for a year involves risk. D. Because you could buy the stock today for $6,300 if you wanted to, the value of the stock bonus cannot be more than $6,300. But if you are not allowed to sell the company's stock for the next year, its value to you could be less than $6,300.
Expert Solution
Step 1

(a).

Value of Stock Bonus today  =  $63.00 * 100  =  $6,300

Value of Cash Bonus  =  $5,000

Therefore, we can buy the stock for $6,300 in cash today and its worth is $6,300 which is higher compared to cash bonus.
Thus, you should choose the Stock Bonus.

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