Finance Project Essay Example | Topics and Well Written Essays - 3250 words

pay Project - Essay ExampleStock options encourage managers to maximize shareholder value. Although stock options were once mute for upper management, there has been a trend to include more employees.Generally, the future purchase price, or glisten price, is equal to the market price of the stock at the time of grant. When an employee exercises options, he or she pays the firm the crash price for the shares, regardless of the then- current market price. Employees usually remain with the firm for a specified item before options vest. Upon vesting, the employees may exercise their options. If an employee leaves the firm, outstanding vested and unvested options are forfeited or put forwardcelled. Options not exercised by a date specified in the option contract will expire. When an employee decides to exercise their stock options, they may every purchase the underlying stock at a discounted price or receive an equivalent notes premium. This transfer from the firm to the employee b ecomes part of the employees taxable income for the year.Firms now grant stock options to a much broader station of employees for many reasons. A firms motivation in implementing a stock option plan includes increased employee productivity, the tie and retention of valuable human capital, reduction of short-run compensation costs, increased cash flows, and higher levels of track record income.Individuals, employers,... Stock options ultimate value to the employee depends on the future stock performance. Consequently, the stock option value is chatoyant at the time of grant.Literature ReviewArbitrage pricing arguments can be extended to quit for diversifiable risks. In equilibrium, these risks will be fully diversifiable and have zero prices. Thus every asset can be priced exactly (or approximately) as a linear combination of a relatively small telephone number of common factors. Although this is instructive for introducing basic ideas of arbitrage, aggregation, and diversifica tion, we require a multiperiod framework to capture a range of intertemporal problems. For example, we would the like to investigate the term structure of interest rates, complicated multiperiod derivative securities, the high-powereds of stock prices, and dynamic hedgerow strategies. It will turn out that our two-period analysis has laid an important foundation for this analysis. By choosing an appropriate dynamic framework, we can generalize our two-date results, and obtain obvious sophisticated reinterpretations of familiar results.Pastor and Stambaugh (2000) provide further lucubrate through an investigation of the portfolio choices of an investor seeking a mean-variance efficient portfolio by comparing the risk based ride of Fama, and French (1993) and the characteristic based model of Daniel, K. & Titman, (1-33). They report that there is virtually no difference betwixt the risk- and characteristic-based models, as both lead to similar portfolio choices within the invest ment universe. (Michael, et.al. 119)While debate continues over informative basis of the various multifactor models, the essence of the argument remains the