Chapter 14 Employee Stock Options

1) Which of the following is true?

A) An employee stock option is usually held to maturity

B) An employee stock option tends to be exercised earlier than an OTC option with the same terms

C) An employee stock options tends to be exercised later than an OTC option with the same terms

D) Employee stock options are usually exercised as early as possible

2) Which of the following is NOT usually true about employee stock options?

A) There is a vesting period

B) They can be sold to other employees

C) They are often at-the-money when issued

D) Their value is currently a charge to the income statement

3) What term is used to describe losses shareholders experience because the interests of managers are not aligned with their own?

A) Agency costs

B) Backdating scandals

C) Dilution

D) Income statement expense

4) Which of the following are true of employee stock options?

A) They are commonly valued as though they are regular American options

B) They are commonly valued as though they are regular American options, but with a reduced life

C) They are commonly valued as though they are regular European option

D) They are commonly valued as though they are regular European options but with a reduced life

5) Which of the following was true about employee stock options prior to 1995?

A) The options never had any affect on a company's financial statements

B) The value of options which were at-the-money when issued had to be expensed on the income statement

C) The value of options which were at-the-money when issued had to be reported in the notes to the financial statements

D) Options which were at-the-money when issued did not affect a company's financial statements

6) Which of the following was true about employee stock options between 1996 and 2004?

A) The options never had any affect on a company's financial statements

B) The value of options which were at-the-money when issued had to be expensed on the income statement

C) The value of options which were at-the-money when issued had to be reported in the notes to the financial statements

D) Options which were at-the-money when issued did not affect a company's financial statements

7) Which of the following was true after 2005?

A) The options never had any affect on a company's financial statements

B) The value of options which were at-the-money when issued had to be expensed on the income statement

C) The value of options which were at-the-money when issued had to be reported in the notes to the financial statements

D) Options which were at-the-money when issued did not affect a company's financial statements