The Exercise Price for Stock Option Plans on the Grant

question 17

Multiple Choice

The exercise price for stock option plans on the grant date is

• A)always higher than the market price of the underlying shares.
• B)always lower than the market price of the underlying shares.
• C)usually lower than the market price of the underlying shares.
• D)usually equal to or higher than the market price of the underlying shares.

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Definitions:

Coase Theorem

A principle suggesting that under certain conditions, when externalities are present, parties can negotiate agreements to allocate resources efficiently without government intervention, as long as property rights are clearly defined and transaction costs are low.

Externalities

Costs or benefits that affect parties who did not choose to incur those costs or benefits, often leading to market inefficiencies.

MSB

Marginal Social Benefit, which refers to the additional benefit society gains from consuming one more unit of a good or service.

MSC

MSC stands for Marginal Social Cost, which is the total cost to society of producing an additional unit of a good or service, including both private and external costs.