The Potential Dilutive Effect of the Exercise of Share Options

question 16

Multiple Choice

The potential dilutive effect of the exercise of share options or warrants will affect which of the following when calculating diluted earnings per share?

• A) the earnings per share numerator
• B) the earnings per share denominator
• C) both the numerator and the denominator of earnings per share
• D) neither the numerator nor the denominator of earnings per share

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Definitions:

Intrinsic Value

The perceived or calculated true value of an asset, investment, or company based on fundamentals, excluding market value fluctuations.

Put Option

A financial agreement that allows the owner to sell a predetermined quantity of a fundamental asset at an agreed-upon price during a certain period, without being obligated to do so.

Exercise Price

The price at which the holder of an option can buy (call) or sell (put) the underlying asset or security, as specified in the option contract.

Warrants

Financial instruments that give the holder the right to buy the underlying stock of the issuing company at a specified price before a specified date.