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Assumptions |
Impact on option's fair value as assumption/input increases |
Impact on option's fair value |
|
Less significant |
More significant |
||
Stock price |
Increase |
X |
|
Exercise price |
Decrease* |
X |
|
Expected term |
Increase |
X |
|
Expected volatility |
Increase |
X |
|
Expected dividend yield |
Decrease |
X** |
|
Risk-free interest rate |
Increase |
X |
* Assuming an at-the-money option, a higher exercise price (and stock price) would drive a higher option fair value, due to the higher time value component of the option value. For an in-the-money option, holding the stock price constant, the exercise price will have an inverse relationship on the intrinsic value of the option—i.e., a higher strike price would reduce the option's fair value.**For a large change in dividend yield (e.g., a change from 3% to 6%) this assumption can become more significant.
Minimum value computation: |
|
Current stock price |
$50.00 |
Less: |
|
|
41.76 |
|
2.90 |
Minimum value |
$5.34 |
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