A Company Issues an Option Grant with an Outperformance Feature,against

question 19

Multiple Choice

A company issues an option grant with an outperformance feature,against the S&P 500.Assume S&P 500 = 1100,S = 46,k = 45,σ = 0.30,r = 0.04,and 10 years until expiration.The S&P 500 has a dividend yield of 2.5%,standard deviation of 20.0% and a 0.45 correlation coefficient with the stock.What is the value of the outperformance option?

• A) $11.92
• B) $15.99
• C) $19.75
• D) $21.05

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Definitions:

Milgram Experiment

A controversial study conducted in the 1960s, demonstrating people's willingness to obey authority figures, even to the point of inflicting harm on others.

Resist

To oppose or strive against something or someone; showing reluctance or opposition to accept or comply with changes, conditions, or regulations.

Experimenter

A person who conducts scientific tests and trials to explore hypotheses, investigate phenomena, or demonstrate principles.

Harm

Physical injury or psychological damage inflicted on a person, animal, or object.