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I do not get this part of question, the 25.4 is ok but I am lost after this point. Can you explain
options = 25•4m × (1 – 0•05)3 × 0•8 = 17•42 million
The question says that there is an attrition rate of 5%. This means that it will fall by 5% per year.
So after one year it will be 0.95 times what it is now, after two years (0.95)^2, and after three years (0.95)^3.
The question also says that 20% will not have reached the standard required, so only 80% (or 0.8) will have reached it.Why is it the time period is 3 years but not 4 years…?
1/1/04-30/11/04, and then from 1/12/04-30/11/07…‘now’ is 30 Nov 2007 (that is when we have the financial data for).
The exercise date is 30 Nov 2010, which is 3 years from ‘now’.
Mr Moffat,
Options = 25•4m × (1 – 0•05)3 × 0•8 = 17•42 million
Out of the above calculation, I didn’t get the “three years” part.As you have replied above that now is 30 November 2007. I don’t see anywhere in the question stating the date.
The financial data given in the question says that it is at 30 November 20X7 if you are looking at the BPP Revision Kit – the original question said 2007!
The three years part is (as I stated before) the 3 years between now and 2010 (in the original exam question), or if you are looking at the BPP Revision Kit is is 20Y0.
In both cases it is 3 years later.
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