Page 124 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chapter 5

5.3 Share options and DEPS

What are share options?

A share option gives the holder an option to buy shares at a set price
in the future.

e.g. option to buy shares at $2.

The option will only be exercised if the holder will make a gain. The
holder will buy at a cheap price. e.g. share price is actually $3; option
to buy at $2.

DEPS treats options as potential discounted shares. Options are
considered as being:

 part full price share issue

 part free/bonus issue.

The free/bonus issue element is treated as if it already exists within
the DEPS calculation.

116