for the sept 2009 q3 question, I don’t understand why the answer is D. If the shares are worth more then £5 will they not make a loss equal to the market value of the share minus the exercise price (£5) multiplied by 1000?? And for October 2012 q1, why is the answer not A. (10x1.40)/11? Thank you!
Hi For Sept 2009, Q3 the answer is B? Maximum potential loss would be having to buy 1,000 Company B shares for £5 if the shares had zero value at the exercise date (remember that the other party has the option to sell the Company B shares to Company A), offset by the £500 option premium that A receives at the start. Oct 2012 Q1 looks unusual doesn't it? You're right that the expected share price after the scrip issue would normally be calculated as 10x1.40/11. The key in this particular question though is the extra info that the directors have made clear that the dividend per share will not be reduced. As the expected share price can be considered as the value of the future expected dividends, and there's no expected change to dividends, the expected share price is unchanged. Hope these help Lynn
