Galaxy and Volatility last Question

Good day all,

I dont understand the Mock answer on the last question for:

Financial Reporting and Analysis - Galaxy

I understand on the grant day the Volatility of the stock will impact the valuation of the stock options, thus the expenses on the plan.

1- But does anyone one knows how the volatility between the grant day and the vest day is suposed to impact the expenses??

2- Also, the volatility of the stock is the volatility of the stock… I don’t understand why they don’t consider it impacting the stock price and impacting the expenses of the Share’s plan…

Quote: “Compensation expense for stock grants is based on the fair market value of the stock on the day of the grant and is not affected by the stock’s volatility.”

AAAAAA!!! help, What the F*@K!!!

??? Any idea???

3- Plus they talk about the trend on volatility that begins in 2012 and the grant of Stock Options was in… 2011. :’( again… WTF, this is from another dimension…

And it’s not a Schwesers…freaking out on this one.

Thank you,

In general, drop in volatility -> option prices go down. Think of it like an insurance policy. After Hurricane Katrina, insurance premiums went through the roof.

As for it’s impact on stock - well, that’s coz stock grants are recorded at fair value on grant date, vol has no impact on fair value and you cannot make adjustment for standard deviation. std dev simply says it could go up or down - accountng wise, it’s a 50/50, so it nets out.

Thanks Shoot for the 50/50 wise accounting standard,

but, I mean, I’ll grant the share plan in 2013, my vol is going down or up, that’s impacting my future accounting Fair Value of the stock, no?

Ok, for the options, its an anual grant.

And does anyone reckon the how expenses between the grant date and the vest date are treated?

I think you are talking about the case where the stock options were granted for “non-executives” in 2013, right. The vignette states that stock options for “executives” were granted in 2010 when volatility is high, which means the options granted at that time will cost more. However after that the volatility has dropped and that is when the “non executives” were given stock options. So for the same number of options, the cost for “executives” and “non-executives” will be different just because of volality. If the volatility is assumed to stay low for the near future, it just means that the cost of options for “non-executives” is appropriate, however for “executives” it is more and will be more for the full service period. So the answer to that question is “A” meaning if the low volatility persists it impacts only the “executives”.