You Have Been Granted Stock Options on 100 Shares of Your

question 53

Multiple Choice

You have been granted stock options on 100 shares of your employer's stock. The stock is currently selling for $20.32, has a dividend yield of 1.4%, and a standard deviation of 23%. The option's exercise price is $20 and the time to maturity is 10 years. What is the value of your options given a risk-free rate of 5%?

• A) $7.04
• B) $7.53
• C) $7.78
• D) $7.97
• E) $8.04

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Definitions:

Cash Flows

The movement of money into and out of a business or project, considered vital for assessing the financial health of an entity.

Reinvested

The act of using profits or earnings to purchase additional assets or to fund operations, aiming for future growth or income.

Payback Period

The time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.

Salvage Value

The estimated resale value of an asset at the end of its useful life.