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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Valuing equity using BSOP
Good evening sir
when we talk about valuing equity using bsop….
its saying that in effect, value of shares can be seen as a call option.
my question: is he talking about shareholders owning call options? call option is the right to buy …. but they ALREADY own the shares….
can u pls explain
i dont quite get the understanding..even tho the math is ok.
Yes, but the market value of the shares is what other people are prepared to pay for them.
Buying them is like a call option because you get the benefit of the company doing well, but there is a limit on what you stand to lose if the company fails.