Question

Aharon exercises 10 stock options awarded several years ago. The following information pertains to the options_______.

(1) each option gives the employee the right to buy 10 shares,
(2) the market price on the grant date was $7,
(3) the strike price is $10, and
(4) the market price on the exercise date was $15.
How much will it cost Aharon to purchase the options on the exercise date?

Answer 1

$1,000

Step-by-step explanation:

Whenever an option is provided to an employee for stock purchase then the cost of such option is the price at which the issue is offered.

Accordingly the actual amount paid to acquire the issue is the cost to acquire such issue.

Thus, the issue granted = 10 stock options

Each option has 10 shares.

Thus, total number of shares offered = 10
`*` 10 =100

The strike price for issue = $10 for each share.

Actual cost = Strike Price
`*` Number of shares = $10
`*` 100 = $1,000.