Stock options are typically granted to a wide employee base with no exercise price.

Stock options are typically granted to a wide employee base with no exercise price.

• A. True
• B. False
• C. Not applicable
• D. Always the case

Answer: (B)

Stock options are rights to buy shares at a fixed price in the future. That fixed price, called the exercise (or strike) price, is a fundamental feature of options. It is typically set at the market price of the stock on the grant date so the option has value only if the stock rises above that price. If there were no exercise price, employees could obtain shares for nothing when they exercise, which would remove the incentive structure options are meant to provide and would disrupt how option value is determined. Hence the statement is not correct. Broad-based grants are common, but the exercise price concept still applies in stock options.

Stock options are rights to buy shares at a fixed price in the future. That fixed price, called the exercise (or strike) price, is a fundamental feature of options. It is typically set at the market price of the stock on the grant date so the option has value only if the stock rises above that price. If there were no exercise price, employees could obtain shares for nothing when they exercise, which would remove the incentive structure options are meant to provide and would disrupt how option value is determined. Hence the statement is not correct. Broad-based grants are common, but the exercise price concept still applies in stock options.