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Bharti Airtel uses Black-Scholes for SBP valuation. Key inputs disclosed include risk-free interest rates, expected life (months), volatility, dividend yield, exercise price, and share price on grant date. Which of these inputs is NOT a standard Black-Scholes input?
ADividend yield
BEstimated future EBITDA growth rate of the issuer
CRisk-free interest rate
DVolatility (historical proxy for expected)
Answer & Solution
Correct answer: B. Estimated future EBITDA growth rate of the issuer
Standard Black-Scholes inputs: spot price, exercise price, risk-free rate, time to expiry (expected life), volatility, dividend yield. EBITDA growth is irrelevant to option pricing — option value derives from share-price probabilistic dynamics, not earnings.
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Bharti Airtel's disclosed accounting policy: 'expense determined by grant date FV which INAn entity MODIFIES an equity-settled SBP after grant date, increasing fair value (favourabContinuing MINDA SAR: at Y3 end, FV ₹141; actual exercise 85%. Compute Y3 incremental expeContinuing MINDA SAR: at end Y2, FV = ₹139; expected exercise 91%. Compute Y2 incremental MINDA issued 11,000 SARs vesting immediately on 1 Apr 20X0. SAR FV ₹100 grant; ₹132 (Y1), Ambani Ltd grants CEO option (1 Jan 20X0) to take 800 shares' cash equivalent OR 990 shareEntity X grants 10 shares each to 1,000 employees conditional on remaining in service AND Entity P issues SBP; market condition expected in 4 years; actually fulfilled in Y5 (a yea