Chapter 14 Employee Stock Options

8) Which of the following is true about employee stock options after they have been issued?

A) They have to be revalued every year

B) They have to be revalued every quarter

C) They have to be revalued every day like other derivatives

D) They never have to be revalued

9) Which of the following is true about the practice of backdating a stock options grant?

A) It is illegal

B) It is illegal in the majority of states in the U.S., but not all states

C) It is illegal in roughly half the states in the U.S.

D) It is unethical, but not illegal

10) A company surprises the market with an announcement that it has granted stock options to senior executives. The options are exercised four years later. When does dilution take place?

A) Dilution takes place when the options are exercised

B) Dilution takes place on the announcement date

C) Dilution takes place gradually over the four years

D) There is no dilution

11) When an employee leaves the company which of the following is usually true?

A) All outstanding employee stock options are forfeited

B) Out-of the money employee stock options are forfeited

C) All options which have vested are forfeited

D) All options are retained

12) Which of the following defines the vesting period?

A) The period during which employee stock options can be exercised

B) The period during which the options are issued

C) The period during which the strike price of the options equals the stock price

D) The period during which employee stock options cannot be exercised

13) Which of the following is NOT true?

A) Management has an incentive to issue executive stock options after bad news

B) Management has an incentive to issue executive stock options before good news

C) Executive stock options encourage management to pursue strategies that are best for the company in the long run

D) Management have an incentive to time the announcement of good news just before they plan to exercise their stock options

14) Which of the following strategies makes no sense?

A) An employee exercises stock options early and sells the stock. No dividends are expected

B) An employee exercises stock options early and keeps the stock. No dividends are expected

C) An employee exercises stock options early and sells the stock. Dividends are expected

D) An employee exercises stock options early and keeps the stock. Dividends are expected