The chairman and CEO of Copart Inc., Adib Azhar has agreed to accept a salary of...

 

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The chairman and CEO of Copart Inc., Adib Azhar has agreed to accept a salary of RM1 per year for the next five years. But in exchange, Copart's board of directors gave him a share option grant that would allow him to buy 2 million of Copart shares. As an investor, he is considering the following investment: (i) A share priced at RM75 and the European put option has an exercise price that decrease by 4 percent from current share price. The variance of share return is 12 percent per year and that as maturity the options had 12 months remaining before expiration. (ii) The current price of call option is RM45 and volatility is 33.5 percent per annum. The exercise price is RM42 and the maturity is 9 months. Based on the information above, calculate the value of option for both scenarios if the risk-free rate is 6.5 percent. The chairman and CEO of Copart Inc., Adib Azhar has agreed to accept a salary of RM1 per year for the next five years. But in exchange, Copart's board of directors gave him a share option grant that would allow him to buy 2 million of Copart shares. As an investor, he is considering the following investment: (i) A share priced at RM75 and the European put option has an exercise price that decrease by 4 percent from current share price. The variance of share return is 12 percent per year and that as maturity the options had 12 months remaining before expiration. (ii) The current price of call option is RM45 and volatility is 33.5 percent per annum. The exercise price is RM42 and the maturity is 9 months. Based on the information above, calculate the value of option for both scenarios if the risk-free rate is 6.5 percent.

Answer rating: 100% (QA)

i European Put Option Current share price RM75 Exercise price Decreases 4 from current price RM75 0... View the full answer