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?
A, $90
B, $500
C, $700
D, $1,000

Answer 1

Answer: Cost to purchase the options on the exercise date = $1000

Explanation:

Given:

Stock options awarded = 10

Right to buy shares = 10

Exercise price = $10

We'll compute the cost as follow:

Cost to purchase the options on the exercise date = Stock options awarded × Right to buy shares × Exercise price

Cost to purchase the options on the exercise date = 10×10×10

Cost to purchase the options on the exercise date = $1000

Therefore, the correct option is (d)