Chapter 14 Employee Stock Options

15) When a CEO has employee stock options, he or she is in theory motivated to do which of the following?

A) Take more risk

B) Take less risk

C) Buy some of the company's stock

D) None of the above

16) When an employee stock option is exercised, which of the following is usually true?

A) The employee pays the market price for the shares and the company refunds the difference between the market price and the strike price

B) The company or the company's agent buys stock in the market for the employee

C) The company issues more shares and sells them to the employee for the strike price

D) The employee cannot immediately sell the shares

17) Which of the following increases the expected life of employee stock options?

A) An increase in the vesting period

B) An increase in employee turnover

C) A fast growth rate for the stock price

D) A tendency for employees to exercise earlier than in the past

18) Which of the following hypotheses is supported by empirical research?

A) The grant date for executive stock options tends to be when the stock price is high

B) The grant date for executive stock options tends to be when the stock price is low

C) The grant date for executive stock options tends to be after a growth spurt in the stock price

D) The is no relationship between the timing of grants and the stock price

19) Which of the following ensures that managers are rewarded only when a company performs better than its competitors?

A) A constant strike price for executive stock options

B) A strike price that increases with time

C) A strike price that changes in line with an index of stock prices

D) A strike price that is tied to reported profit

20) Employee stock options are particularly popular with start ups because

A) They encourage employees to work hard

B) The start up cannot afford to pay high salaries

C) The risk associated with the company's success is shared with employees

D) All of the above