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