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

question 8

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 feature?

• A) $2.25
• B) $3.29
• C) $4.11
• D) $4.78

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Definitions:

Psychiatrists

Medical doctors specialized in diagnosing, treating, and preventing mental, emotional, and behavioral disorders.

Biomedical Therapy

Treatments for mental disorders that involve physiological interventions, such as medication or surgery.

Medical Degree

A medical degree is an academic qualification awarded to students upon completion of a course of study in medicine, qualifying them to become professional medical practitioners.

Insight Therapy

A type of psychotherapy aimed at increasing a patient's awareness of underlying motives and defenses to change behavior.