harder to drive up profits. Stock option plans are different from stock award programs because stock option plans present employees with the option to purchase stock whereas stock award programs are grants of stock that are subject to certain conditions. Stock option plans have grown in popularity and are now an essential piece of any total compensation plan for senior management‚ executives‚ and key employees. Stock option plans give employees the option to purchase a specified number of shares
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Lynch’s choice of the conversion premium and coupon rate to propose to MoGen management. This pricing decision requires students understand the concept of valuing a convertible as the sum of a straight bond plus the conversion option. Valuing the conversion option as a call option requires the estimation of the Black-Scholes model‚ with the volatility being a particularly challenging input. On a strategic level‚ the case introduces students to the concept of matching a company’s business risk
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Answer for question A Based on the trends in following portfolio and P/L chart during the period of January‚ February and March‚ it is clearly to see there were some hedging effects during those three months transactions‚ but our hedging transactions were not enough in January and February and the situation was improved during the period of March. The unhedged line is the market intrinsic value and the red line shows our real operation reflects on the portfolio. At the end of January‚ if unhedged
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forward contract and the options contract. Answer: There is no up-front cost of hedging by forward contracts. In the case of options hedging‚ however‚ hedgers should pay the premiums for the contracts up-front. The cost of forward hedging‚ however‚ may be realized ex post when the hedger regrets his/her hedging decision. 4. What are the advantages of a currency options contract as a hedging tool compared with the forward contract? Answer: The main advantage of using options contracts for hedging
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price C = Call option P = Put option r = Continuous risk-free interest rate δ = Continuous dividend rate t = Time σ = Volatility (Normal distribution) ∆ = Shares of stock to replicate option B = Amount to borrow to replicate option p∗ = % Chance stock will increase (using r) p = % Chance stock will increase (using α) q = % Chance stock will decrease u = Ratio increase in the price d = Ratio decrease in the price α = Expected rate of return on a stock γ = Expected rate of return on an option C0 = Current
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The purpose of this case study is to discuss the issues related to stock options and how they should be accounted for. Introduction In the early 1990s‚ FASB proposed an accounting rule calling for corporations to recognize compensation expense for certain stock options when they were granted to executives and employees. This proposal was met with strong opposition from many different sources including: Congress who passed a resolution by vote urging FASB to drop the proposed standard‚ business
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www.business.unsw.edu.au Australian School of Business School of Banking & Finance FINS3635 OPTIONS‚ FUTURES AND RISK MANAGEMENT TECHNIQUES Session 2‚ 2013 Assignment Due 9 am on October 23‚ 2013 This is a group assignment to be undertaken by no more than 7 students. Group members can be formed from different tutorial classes. You may use Excel for this assignment. Submission: You must upload your assignment on UNSW Blackboard before 9am on 23/10/2013 and hand in a printed copy in the
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Case of Cephalon Based on the contract‚ the strike of the call options is $21.5‚ and capped at $39.5. Thus this is a combination of a call option at $21.5 and a put option at $39.5 two options‚ and the value is the difference between the two. Based on the Balck-scholes call formula‚ among which‚ ； 1）The price of call option with the strike price of $21.5: S=$20;K=$21.5;r=5.5%;T-t=0.5yrs;σ=75% 2）The price of put option with the strike price of $39.5: S=$20;K=$39.5;r=5.5%;T-t=0.5yrs;σ=75%
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approved by the FDA‚ would you recommend that Cephalon follows a strategy of making an immediate onetime payment to purchase all of the rights to this drug rather than making a stream of payments under the milestone payment/interim license/purchase option agreement that was in place? Explain your reasoning. Answer: If Myotrophin is approved‚ I will recommend Cephalon to make a onetime payment to purchase the rights to this drug. First of all‚ we want to find out if we are capable to raise this large
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Tiffany & Co. Transaction and Economic Exposure Tiffany & Co. Facing Exchange Rate Risks SI S Following Tiffany & Co. Japan’s new retailing agreement with Mitsukoshi Ltd. in July 1993‚ TiffanyJapan was now faced with both new opportunities and risks. With greater control over retail sales in its Japanese operations‚ Tiffany looked forward to long-run improvement in its performance in Japan despite continuing weak local economic conditions. However‚ Tiffany was now also faced with
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