In the 1990s, a Number of Companies Which Had Experienced

question 24

Multiple Choice

In the 1990s, a number of companies which had experienced sharp stock price declines, "repriced" previously-awarded employee stock options. Repricing consisted of resetting the options' strike prices to the current stock price (so as to bring them closer to the money) . Suppose a company awards at-the-money stock options to its employees and decides it will reprice them if the stock price falls 50% from the initial award date. Then, the employee stock option is equivalent to a portfolio of

• A) A vanilla call and a forward-starting call.
• B) A knock-out and a knock-in barrier call option.
• C) A knock-out call and a forward-strarting call.
• D) A cliquet.

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Definitions:

Latin Americans

People from countries in Latin America, characterized by diverse cultural, ethnic, and historical backgrounds.

French

A Romance language spoken primarily in France, also an official language in multiple countries and international organizations.

Conform

The act of matching attitudes, beliefs, and behaviors to group norms or societal standards.

Asch's Studies

A series of experiments designed to demonstrate the power of conformity in groups, conducted by Solomon Asch.