15. Suppose your employer offers you a choice between a $4,900 bonus and 100 shares of...
15. Suppose your employer offers you a choice between a $4,900 bonus and 100 shares of the company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $62.91 per share.
a. If you receive the stock bonus and you are free to trade it, which form of the bonus should you choose? What is its value?
b. If you receive the stock bonus and you are required to hold it for at least one year, what can you say about the value of the stock bonus now? What will your decision depend on?
Homework Answers
Solution:
a)
Cash Bonus = $4,900
Stock Bonus =$6,291 ($62.91*100)
Therefore we can buy the stock for $6,291 in cash today and it's worth is $6,291 which is higher compared to cash bonus.
b)
Since we can able to buy the stock today for $6,291 the worth of the stock bonus will not be higher than $6,291.
However if we are not permitted to trade the corporation's stock for the subsequent years, because it's worth might be a reduced amount of $6,291. The worth will be expected in one year where the risk is also involved in them.
We may choose to take the $4,900 in cash than to take $6,291 after a year.
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