Which of the Following Statements Is True Regarding Stock Options

question 30

Multiple Choice

Which of the following statements is true regarding stock options?

• A)When exercised, an incentive stock option has an option price exceeding the market price.
• B)When granted, a non-qualified stock option has an option price exceeding the market price.
• C)The fair value of an incentive stock option equals the current market price of the stock minus the present value of the exercise price discounted at the risk free interest rate over the number of years of life of the option.
• D)The value of an incentive stock option cannot be determined at the grant date,

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Definitions:

Marginal Cost

The expenditure required to produce one more unit of a particular product or service.

Monopolistically Competitive

A market structure characterized by many firms, differentiated products, and free entry and exit, allowing firms some control over price while still competing on quality, branding, and price.

Externality

A cost or benefit that affects a third party who did not choose to incur that cost or benefit.

Efficient Scale

The level of production at which a firm's average total costs are minimized.