"Financial options are easier to value than the common stocks to which they relate." Discuss - Essay Example

Only on StudentShare

Extract of sample
"Financial options are easier to value than the common stocks to which they relate." Discuss

In case of payment of dividends also, the common stocks are allocated dividends only after the preferred stockholders are paid in full. Thus the valuation of common stock is an area of interest for the investors as it gives an idea of the financial health of the company and also a forecast of the future in terms of profit and loss to be incurred by the company. The valuation of common stock is represented in terms of its present value or fair value or intrinsic value (Moyer, Moyer, McGuigan, Rao and Kretlow, p.249). Financial Options Financial options are contracts which give the right to the owner of the Option to buy or sell an underlying stock at certain agreed upon price within a certain period of time. The owner of the financial option is, however, not obligated to buy or sell the underlying stock within the specified time frame. The agreed upon price is called the strike price. When the buyer executes the option of buying the underlying security at the strike price, it is called “call” option. When the buyer executes the option of selling the underlying security at the strike price, it is called “put” option. ...Show more

Summary

Financial options are easier to value than the common stocks to which they relate Common Stock Common stocks are shares and securities of a company that resemble ownership in the form of equity of the company. The holders of common stock have the voting rights in electing the Board of Directors and also have controlling power in decision making aspects…
Author : mable52
Save Your Time for More Important Things
Let us write a custom essay on your topic
""Financial options are easier to value than the common stocks to which they relate." Discuss"
with a personal 20% discount.
Find out more

Related Essays

Implications of GCC currency union
The study first establishes the benefits and disadvantages that are associated with a unified regional currency and the issues attendant thereto. It then proceeds to determine whether the GCC monetary union as envisioned has a likelihood of success, what factors and attributes will determine this success.
56 pages (14000 words) Dissertation
Measurement and Disclosure of Value at Risk for Mutual Fund Portfolios
This paper has focused upon the performance and measure of risk of mutual funds as well as models used to measure and testing volatility. Volatility testing and forecasting has been done in using different options of mean and variation specification of models that are further compared with proxies of factual volatility that is determined by making use of daily statistics.
40 pages (10000 words) Research Paper
Financial Modeling Of Value At Risk Portfolio
The paper uses probability measures to determine how frequent we anticipate various results to take place should we repeat a provided experiment repeatedly. The stakeholders of the four companies choose investment as a probability approach. The following data analysis is to present a standard report on the development of an event study of a statistical model of shares market data.
20 pages (5000 words) Essay
Financial Analysis:Estimation of the equity value of the company
The first and foremost step of the equity valuation process is obtaining a decent understanding of the entity and industry to which that particular entity belongs. It is imperative to analyze the financial reports of the corporation because based on these figures and facts the forecast of the future is prepared which eventually assists in determining the value of the equity.
13 pages (3250 words) Essay
Use of Real Options Theory in Financial Management/Modeling
Use of Real Options Theory in Financial Management/Modeling It goes further to identify the activities that facilitated my understanding of the real options theory and other practical application matters connected to the real option theory. The Need for the Real Options Theory The Real Options Theory is a finance theory that is increasingly being used by top-level management and people charged with the governance of businesses to take good financial decisions.
8 pages (2000 words) Term Paper
Do financial management decisions influence firm value?
BP formulated the main financial management decisions that devoted to a wise use of capital and a careful selection of sources of the capital in order to enable the company to expand in the direction of reaching its goals. The main financial management decisions are grouped into three broad categories that include; Investment, financial and dividend decisions that influence the effectiveness of the BP in the Community.
4 pages (1000 words) Essay
Discuss the Role of Exchange Traded Currency Options in Risk Management
Expiry date and price of the exercise are highly taken into account. The year 1982 saw the initiation of exchange traded foreign exchange options. Specifically, London, Chicago and Philadelphia were the first places where currency options were traded. Futures and options basically characterized the transactions undertaken in the currency options market.
9 pages (2250 words) Essay
watch the video then answer the question
a societal marketing orientation and is not just a market-oriented company that integrates a number of various environmental practices and gets it into its operations. The Oxford dictionary defines the verb ‘care’ as ‘feel concern or interest; attach importance to
1 pages (250 words) Essay
Find out how much would it cost
to get a custom paper written by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT