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Pa = the current share price 1.2 billion
Pe = the exercise price of the option 800 million
r = the annual risk free rate of interest 5.5%
t = the time (in years) until expiry of the option 10 years
S = the share price volatility 52%
D = Expected cost of delay (d) = 4.7%
[n?(1200/800)+(0.055-0.047+ ?0.52?^2/2)(10)]/(0.52?10) = 1.0736
My questions please Mr. Moffat is
1. Why is there an expected cost of delay and will this be in the exam?
2. Even if the delay is not asked, how is it that the answer is 1.0736 and not 1.117?
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