20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for March 2025 exams.
Get your discount code >>

Exercise price in BSOP

This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.

Viewing 2 posts - 1 through 2 (of 2 total)

Author
Posts
November 16, 2021 at 2:39 am #640730
saifalikhan1022@gmail.com
Member
- Topics: 3
- Replies: 0
Sir, I want to know as to why we don’t consider the PV of the exercise price in option valuation.
For. eg if in investment appraisal if we are going to invest in 2 years time & after 2 years our exercise price will be 2m.
We only take 2m not the PV of 2m.
Why sir?
November 16, 2021 at 9:03 am #640753
John Moffat
Keymaster
- Topics: 57
- Replies: 54513
We do consider the PV 🙂
As I explain in my free lectures on this, when in the formula we multiply Pe by the term which includes the term ‘e’ in it then this is discounting Pe on a continuous basis (rather than discounting yearly as we usually do when discounting).
Author
Posts

Viewing 2 posts - 1 through 2 (of 2 total)

You must be logged in to reply to this topic.