On November 1, 2017, Columbo Company adopted a stock-option plan that granted options to key executives to purchase 30,000 share
s of the company's $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense to be S450.000 All of the options were exercised during the year 2020: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share nstructions Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 201:8 and 2019.
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Answer:
Explanation:
a. If you believe that the term structure next year will be the same as today’s, calculate the return on (i) the 1-year zero and (ii) the 4-year zero.
b. Which bond provides a greater expected 1-year return? O 1-year zero-coupon bond O 4-year zero-coupon bond
The return on one year bond is = 5.2%
The price of 4 year bond today
Price of 4 year bond today = 807.22
If yield curves is unchanged, the bond will have 3-year maturity and price will be
If yield curves is unchanged, the bond will have 3-year maturity and price will be = 854.04
Return
Return = 5.8%
The longer term bond has given the higher return in this case at it's YTM fell during the holding period(4 -year)