Investment Calculator: Asset Management, Stock Option Calculators
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Annual Stock Option Grants
Investment Calculator
- Many companies issue annual stock option grants to their employees. Receiving a stream of stock options over a period of years can be an incredible investment benefit. Use this investment calculator to project how much a series of annual stock option grants could be worth to you. This and other finance calculator can help you reach your investment goal.
Investment Calculator - Stock Option Grants Definitions
Stock option grants
are often used as employee incentives that can be an incredible investment opportunity for employees. The most common types of stock options grants are annual grants and hire grants. An annual grant recurs each year until the plan changes, while a hire grant is a one-time grant given to new employees. Some companies offer both hire grants and annual stock option grants. These plans are usually subject to a vesting schedule, where an employee is granted stock options that vest over a number of years. To vest, an employee must remain with the company. Once vested, the employee can exercise the stock options to acquire shares in the company at the grant or strike price.
Current stock price - Current stock price. For this investment calculator, the current stock price is assumed to be the strike price. The strike price is the stock price that your stock options were issued at. The underlying stock price must exceed the strike price for your options to have any value.
Stock appreciates at - This is the annual rate of return you expect from the stock underlying your stock options. Thanks to the leveraged nature of your stock options, once the underlying stock value has exceeded your strike price, the value of your stock options will increase at an accelerated rate. The actual rate of return is largely dependant on the type of investments you select. From January 1970 to December 2007, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.4% per year (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, and the lowest was -39%. Savings accounts at a bank can pay as little as 1% or less.
It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.
Annual stock option grant - This is the number of stock options you receive each year. The strike price for each year will be calculated as the projected stock price.
Number of years - The number of years you expect to hold these stock options. This can be any number from three to twenty-five.