Question

Fully vested incentive stock options exercisable at $36 per share to obtain 26,000 shares of common stock were outstanding during a period when the average market price of the common stock was $40, and the ending market price was $40.

a) Calculate the profit from exercising the stock options.
b) Determine the total number of shares obtained.
c) Identify the average market price during the period.
d) Explain the concept of vested incentive stock options.

Answer 1

a) No profit as exercise price equals market price. b) 26,000 shares obtained. c) Average market price is $40. d) Vested incentive stock options are options that can be exercised.

Step-by-step explanation:

a) To calculate the profit from exercising the stock options, we first need to determine the difference between the exercise price and the market price of the stock. In this case, the exercise price is $36 per share and the market price is also $36 per share. Since the market price is equal to the exercise price, there is no profit from exercising the stock options.

b) The total number of shares obtained is 26,000 shares, as stated in the question.

c) The average market price during the period is also $40 per share, as stated in the question.

d) Vested incentive stock options are stock options that have reached a point where the holder of the options can exercise them and acquire the underlying stock at the predetermined exercise price. In this case, the options are fully vested, meaning that the holder has the right to exercise them and obtain the shares. However, since the exercise price is equal to the market price, there is no financial benefit in exercising the options.