Stock options; graded vesting; measurement using a single fair value per option
• LO19–2
Refer to the situation described in P 19–2. Assume Pastner measures the fair value of all options on January 1, 2018, to be $4.50 per option using a single weighted-average expected life of the options assumption.
Required:
1. Determine the compensation expense related to the options to be recorded each year 2018–2021, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately.
2. Determine the compensation expense related to the options to be recorded each year 2018–2021, assuming Pastner uses the straight-line method to allocate the total compensation cost.
P 19–2
Stock options; graded vesting
• LO19–2
January 1, 2018, the company issued 400,000 executive stock options permitting executives to buy 400,000 shares of Pastner stock for $34 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2018 (graded vesting). Pastner elects to separate the total award into four groups (or tranches) according to the year in which they vest and measures the compensation cost for each vesting date as a separate award. The fair value of each tranche is estimated at January 1, 2018, as follows:
Vesting Date | Amount Vesting Fair | Value per Option |
Dec. 31, 2018 | 25% | $3.50 |
Dec. 31, 2019 | 25% | $4.00 |
Dec. 31, 2020 | 25% | $4.50 |
Dec. 31, 2021 | 25% | $5.00 |
Required:
1. Determine the compensation expense related to the options to be recorded each year 2018–2021, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately.
2. Determine the compensation expense related to the options to be recorded each year 2018–2021, assuming Pastner uses the straight-line method to allocate the total compensation cost.
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Chapter 19 Solutions
INTERMEDIATE ACCOUNTING RMU 9TH EDITION
- Required: Refer to Figure 15.1, which lists the prices of various Microsoft options. Use the data in the figure to calculate the payoff and the profit/loss for investments in each of the following November 2019 expiration options on a single share, assuming that the stock price on the expiration date is $138. (Loss amounts should be indicated by a minus sign. Round "Profit/Loss" to 2 decimal places.) ✓ Answer is complete but not entirely correct. Payoff Profit/Loss a. Call option, X = 135 $ 3.00 $ (3.78) b. Put option, X = 135 $ 0.00 $ (1.89) c. Call option, X = 140 $ 0.00 $ (1.50) X d. Put option, X = 140 $ 7.00 $ 0.35 xarrow_forwardhelp mearrow_forwardQ4 Using the Put-Call Parity relationship, find the value of a put option (same strike, expiration as the call option) using the following information: Current stock price 6% Call option strike price $6.56 Option time to maturity $33 $32 1 years risk-free rate Call option current value SHOW WORK HERE, HIGHLIGHT FINAL ANSWER IN YELLOWarrow_forward
- Question 4 Consider the following: your purchased a put option on JPM two months ago, with a strike price for the option of $138, and the option expires today. Show work for all parts requiring computation. Suppose the stock price is $152. What is the exercise value? In general, how is the value of a put option affected by time (+/-/None), underlying asset volatility (+/-/None), and the current asset price (+/-/None)?arrow_forward1. What is the intrinsic and time value for the put option premium with a strike price of $70/barrel and expiry date December 2021? 2. What is the intrinsic and time value for the put option premium with a strike price of $69/barrel and expiry date March 2022?arrow_forwardQuestion 5: Suppose that a March call option to buy a share for $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.Plz explain itarrow_forward
- What is the appropriate risk-free rate on May 11, 2022 for an option that expires on Oct 20, 2022 if the T-bill with closest maturity is quoted as 3.65/3.44? a. What is the un-annualized discount rate? Round your answer to two decimals. b. What is the T-bill price? Round your answer to two decimals b . What is the approximate risk-free rate? % Round your answer to two decimalsarrow_forwardD6) Finance Your Beloved Machine’s current stock price is $90. YBM December 100 calls trade for $6. a. Adjust the options prices and terms of the contract for a 4:1 split. b. Adjust the options prices and terms of the contract for a 3:2 splitarrow_forwardAssuming that a September put option to buy a share for $100 costs $4.50 and is held until September. Under what circumstances will the holder of this option make a profit? Under what circumstances will the option be exercised? Draw a diagram showing how the profit on a long position in the option depends on the stock price at the maturity of the option.arrow_forward
- Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781285867977Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
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