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BSOP – asset and exercise price

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › BSOP – asset and exercise price

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
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  • February 27, 2020 at 1:24 am #563254
    xanpech
    Member
    • Topics: 14
    • Replies: 52
    • ☆☆

    I was just trying the Mar/June 2019 sample exam, question 1 (Talem Co) has a bit about BSOP model. I’m still slightly confused by the asset and exercise price. I would have thought the asset price would have been the 30 million offer, and to exercise it this would have been the opportunity costs of the cash flows they wouldn’t recieve in year 3 and 4, rather than the other way round?

    Thanks,
    Alex

    February 27, 2020 at 4:00 pm #563340
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    Pa ia the value of the asset, which is the PV of the future flows.

    Pe is the exercise price i.e. the amount of the offer.

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