The Following Information Relates to Questions
on 1 July

question 29

Multiple Choice

The following information relates to questions
On 1 July 2013 Fantasy Ltd granted 200 options to each of its 100 employees. The share options will vest on 30 June 2015 if the employees remain employed with the company on that date. The share options have a life of four years. The exercise price is $5, which is also Fantasy's share price at the grant date. Fantasy is unable to reliably estimate the fair value of the share options at the grant date.
Fantasy's share price and the number of options exercised are set out below. Share options may only be exercised at year end.
$$\begin{array} { | l | l | l | } \hline \text { Year ended } & \begin{array} { l } \text { Share price } \\\text { at year end }\end{array} & \begin{array} { l } \text { Number of aptions } \\\text { exercised at year end }\end{array} \\\hline \text { 30 June } 2014 & \$ 6 & - \\\hline \text { 30 June } 2015 & \$ 7 & - \\\hline \text { 30 June } 2016 & \$ 8 & 7,800 \\\hline \text { 30 June } 2017 & \$ 9 & 10,000\\\hline\end{array}$$
-The formula to calculate the remuneration expense for the year ended 30 June 2016 is:

• A) 7800 x ($8-$7)
• B) 7800 x $8
• C) (7800 + 10 000) x ($8-$5)
• D) (7800 + 10 000) x ($8-$7)

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Definitions:

Stock Price

The price at which a particular share of stock is bought or sold in the market.

Risk-free Rate

The theoretical rate of return of an investment with zero risk, often represented by the yield on government bonds.

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a set price before the contract expires.

Exercise Price

The price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying security or commodity.