l On January 1, 2016, 50 executives were given a performance-based…
Question Answered step-by-step l On January 1, 2016, 50 executives were given a performance-based… lOn January 1, 2016, 50 executives were given a performance-based share option plan that would award them with a maximum of 300 shares of $10 par common stock for $20 a share. On the grant date, the fair value of an option was $16.50. The number of options that will vest depends on the size of the annual average increase in sales over the next three years according to the following table: Annual Average Increase in Sales No. of SharesGreater than 5% 50Greater than 10% 150Greater than 15% 300 On the grant date, the company estimates the annual average sales increase will be 14%. In 2017, the company determined that the actual annual average increase was 16%. The compensation expense for 2017 will be$123,750$247,500$82,500$55,000 On January 1, 2016, 50 executives were given a performance-based share option plan that would award them with a maximum of 300 shares of $10 par common stock for $20 a share. On the grant date, the fair value of an option was $16.50. The number of options that will vest depends on the size of the annual average increase in sales over the next three years according to the following table: Annual Average Increase in Sales No. of SharesGreater than 5% 50Greater than 10% 150Greater than 15% 300 On the grant date, the company estimates the annual average sales increase will be 14%. Refer to Exhibit 15-6. The estimated total compensation cost will be$247,500$55,000$27,500$123,750 Determine which of the following risk management techniques can hedge the financial risk of an oil producer arising from the price of the oil that it sells. I. Short forward position on the price of oil II. Long put option on the price of oil III. Long call option on the price of oil (A) I only (B) II only (C) III only (D) I, II, and III (E) The correct answer is not given by (A), (B), (C), or (D) One-sided search with recallTime: Discrete, innite horizon.Demography: Single worker who lives for ever.Preferences: The worker is risk-neutral (i.e. u(x) = x): He discounts the future atthe rate r:Endowments: When unemployed, the worker receives income b > 0 per period. Alsowith probability he gets an o¤er of employment at a wage w F(w): The distributionfunction F completeWhen the worker accepts a wage, w, he becomes employed and earns w until he islaid-o¤, which occurs with probability :The only change from the standard one-sided model is that the unemployed workercan now recall any o¤er received during the current spell of unemployment. Clearly,he will only potentially recall the highest o¤er to date. Call this ^ w: (If no o¤er hasbeen received then ^ w = 0:)(a) Write down the Bellman-type asset equations for each of the states the workercan be in and briey explain each one. (Hint: The value to unemployment cannow potentially depend on ^ w.)(b) Obtain the ow value equations from the Bellman equations.(c) Dene (algebraically) the reservation wage w( ^ w) that a worker with currenthighest o¤er ^ w will accept.(d) Solve for the appropriate reservation wage equation.(e) Comment on the value of permitting the worker to recall o¤ers. Time-saving public goods. Consider the following version of a stochastic growthmodel. There are a xed number of price-taking producers that solvemaxLt0t = Yt ??WtLt;Yt = L1??t ; 0 < < 1; (PRF)where: t is prot; Yt is output Lt is labor; and Wt is the real wage. The populationand number of rms are normalized to 1, so that upper case letters denote intensiveas well as aggregate quantities.The preferences of the representative household over consumption, Ct, governmentspending, Gt, and labor are given byE0X1t=0tln (Ct) ?? 11 + (Lt ?? Gt)1+ ;0 < < 1; 0; > 0; > 0:Households receive labor income and prots from rms. They pay lump-sum taxes,Tt, to the government. Households earn a gross return of (1 + r) on their assets, Kt,with (1 + r) = 1. As usual, assume that assets held at the beginning of period t+1,Kt+1, are chosen in period t. Note that capital is used only as a storage device, andnot as a factor of production. Households face the usual initial, non-negativity andNo-Ponzi-Game conditions.The governments ow budget constraint is given byTt = Gt;where Tt is the total value of lump-sum taxes. Lump-sum taxes are driven by gov-ernment spending, which follows an AR(1) process around the log of its steady statevalue: bgt ln (Gt=Gss) = bgt??1 + “t; 0 < 1; (TS)where f"tg is an exogenous i.i.d. process, and Gss is steady state government spending.You can also assume that Gt < Yt and Gt < Lt, 8t.(a) Find the equilibrium conditions for this economy, namely: the labor allocationcondition; the Euler equation; and the capital accumulation equation.(b) Let lower-case letters with carats b denote deviations of logged variables aroundtheir steady state values. Show that the log-linearized expressions for labor hoursand output are:b`t = 1bgt ?? 2bct; 1 0, 2 > 0;byt = 1bgt ?? 2bct:(c) Suppose that the steady state consumption-to-capital ratio, Css=Kss, is , andthat the steady state government spending-to-capital ratio, Gss=Kss, is , with( + ) > r. It is then straightforward to show that the steady state output-to-capital ratio, Yss=Kss, is + ?? r. (Take this as given). Using this result,log-linearize the capital accumulation equation to show thatbkt+1 = (1 + r)bkt + !1bgt ?? !2bct: (CA0)(d) What are the signs of !1 and !2? What happens to these signs as ! 0? Providea brief intutive explanation. One-sided search with recallTime: Discrete, innite horizon.Demography: Single worker who lives for ever.Preferences: The worker is risk-neutral (i.e. u(x) = x): He discounts the future atthe rate r:Endowments: When unemployed, the worker receives income b > 0 per period. Alsowith probability he gets an o¤er of employment at a wage w F(w): The distributionfunction F has support on [0; w] where w > b:When the worker accepts a wage, w, he becomes employed and earns w until he islaid-o¤, which occurs with probability :The only change from the standard one-sided model is that the unemployed workercan now recall any o¤er received during the current spell of unemployment. Clearly,he will only potentially recall the highest o¤er to date. Call this ^ w: (If no o¤er hasbeen received then ^ w = 0:)(a) Write down the Bellman-type asset equations for each of the states the workercan be in and briey explain each one. (Hint: The value to unemployment cannow potentially depend on ^ w.)(b) Obtain the ow value equations from the Bellman equations.(c) Dene (algebraically) the reservation wage w( ^ w) that a worker with currenthighest o¤er ^ w will accept.(d) Solve for the appropriate reservation wage equation.(e) Comment on the value of permitting the worker to recall o¤ers. Business Accounting BIO 42 Share QuestionEmailCopy link Comments (0)
