Question

Suppose your employer offers you a choice between a $ 5 comma 000 bonus and 100 shares of the​ company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $ 63.38 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?

Answer 1

Answer:

a) I will pick the shares and sell them ,as this will yield a better return 6,338 to 5,000

b) I will consider:

• the expectation on the stock price
• and the rate of return in the market
• at current price, it will yield 26.76%

Explanation:

100 shares x 63.38 = 6,338 cash bonus for shares

If the stocks should be retained for at least a year.

there are two components that will need consideration:

the expectation on the stock price

and the rate of return in the market

if we assume the stock will keep the same value then it will yield:

6,338 / 5,000 - 1 = 0.2676 = 26.76%