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The Executive Janitor of NuValue Was Granted 1,000,000 Options

Question 25

Essay

The executive janitor of NuValue was granted 1,000,000 options.The equity price at the time of the
granting of the options was £25 and the options are at the money.The risk free rate was 3% and the
options expire in 3 years.The variance on the equity is .04.What is the value of the options
contract?

Correct Answer:

verifed

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d1 = [.03 + (.50x.04)(3)]/ √(.04)3
d1 = ...

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