Question

Mason has decided to offer stock options in his new real estate venture to new employees. The options vest over 4 years. Izzy happily accepts 1,000 options to buy the stock at $5 per share. At the end of year 3, Mason's stock is now worth $65 per share. Izzy has earned how much from her decision to stick with the real estate company - that is, how much would her net options be worth at that time?

A. $45,000

B. $65,000

C. $48,750

D. $60,000

Answer 1

Step-by-step explanation:

To calculate the value of Izzy's stock options at the end of year 3, we need to consider the vesting period and the increase in the stock price.

Given:

Number of options = 1,000

Exercise price (price to buy the stock) = $5 per share

Stock price at the end of year 3 = $65 per share

The options vest over 4 years, so at the end of year 3, Izzy would have been with the company for 3 years, and 3/4 of her options would have vested.

Number of vested options = (3/4) * 1,000 = 750 options

Now, let's calculate the value of the vested options at the end of year 3:

Value of vested options = Number of vested options * (Stock price - Exercise price)

Value of vested options = 750 * ($65 - $5)

Value of vested options = 750 * $60

Value of vested options = $45,000

Therefore, Izzy's net options would be worth $45,000 at the end of year 3. The correct option is:

A. $45,000