Adrienne Schultz-GB550unit6Assignment

Adrienne Schultz-GB550unit6Assignment - Adrienne Schultz...

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Adrienne Schultz GB:550 Unit 6 Assignment Chapter 13: Question 13-5 Pg. 548 How is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholders’ expectations? Stock options are in essence the right to buy a specified number of shares at a specified price (known as the "strike price") within a specified period of time. If at any given point the current price of a share of stock is higher than the strike price, the options have value. Both stock price and shareholder expectations tend to fluctuate, and not always in the same direction at the same time, so it's quite normal for the two to be at least temporarily out of alignment. The value of the options is based on the difference between the current stock price and the strike price, while shareholder expectations are based on what shareholders collectively thought the stock should or would be worth. If a share of stock is worth more than the strike price, but less than the shareholders were expecting. Chapter 15: Problem 15-8
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This note was uploaded on 02/05/2012 for the course BUS gb550 taught by Professor Machuca during the Spring '11 term at Kaplan University.

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Adrienne Schultz-GB550unit6Assignment - Adrienne Schultz...

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