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Hello Tutor,
There are two statements which are bothering me. I’d be grateful if you help me in understanding them.
1) The fair value of SAR could exceed it’s intrinsic value at exercise date.
2) At the end of exercise period,
intrinsic value of SAR will equal its fair value.Thank you.
1. Intrinsic value based on current share price. Fair value takes account of future price changes (‘time value’). Use intrinsic value for cash paid out and FV for valuation of unexercised SARs at year end.
2. FV and IV will be the same – they represent the money to be given to the SAR holder on that date.
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