Regarding Employee Stock Options, Which of the Following Is/are Not

question 118

Multiple Choice

Regarding employee stock options, which of the following is/are not true?

• A)Firms compute a fair-value-based measure of employee stock options on the date of the grant using an option-pricing model that incorporates information about the current market price, the exercise price, the expected time between grant and exercise, the expected volatility of the stock, the expected dividends, and the risk-free interest rate.
• B)Total compensation cost is the number of options the firm expects to vest times the value per option.
• C)Firms amortize total compensation cost over the requisite service period, which is the expected period of benefit.
• D)The requisite service period is usually the period between the grant date and the redemption date.
• E)Firms do not typically remeasure most types of stock options after the initial grant date.

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Definitions:

Pooled Standard Error

A method to estimate the standard error across two or more samples by combining the individual standard deviations into a single measure, often used in t-tests.

Confidence Interval

A variety of values obtained from sample data that probably encompasses the value of an unspecified population characteristic.

Margin of Error

An expression of the amount of random sampling error in a survey’s results.

Test Statistic

A calculated value used in statistical testing to determine if the null hypothesis can be rejected.