In Situations Where an Option-Pricing Model Is Required to Be

question 23

Multiple Choice

In situations where an option-pricing model is required to be used to determine the fair value of equity instruments granted, the accounting standard, AASB 2 Share-based Payment:

• A) requires the use of a binominal option-pricing model.
• B) requires the use of the Black-Scholes-Merton formula.
• C) allows the entity to choose the option-pricing model it wishes to use, but contains a number of factors that the option-pricing model selected must take into account as a minimum.
• D) requires expected dividends to be taken into account when measuring the shares or options granted.

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Definitions:

Total Assets

The sum of all assets owned by an individual or organization, including both current and non-current assets.

Owners' Initial Investment

The initial amount of money or resources contributed by the owners to start a business.

Profits

The profit made when the money earned from business operations is more than the expenses, costs, and taxes needed to maintain the operations.

Open Book Management

Practice of sharing financial information with employees and teaching them how to understand and use financial statements.