Under what terms can an executive buy stock in a stock option plan?
A) In future years at a fixed discount rate depending on individual performance
B) In future years with a guaranteed return
C) At a price equivalent to the company's current book value
D) In future years at a price determined when the stock option was issued
E) At any date but the transaction must be approved by the Board of Directors

Question

Quizplus · Accepted Answer

Typically, in a stock option plan, executives can buy stock at a price determined when the stock option was issued. This price, also known as the exercise price, is usually set at a discount to the market price of the stock at the time of the grant. The idea is to incentivize executives by allowing them to profit from any future increase in the company's stock price. The transaction is usually subject to certain conditions, such as vesting requirements and the approval of the Board of Directors. Option A and B are unlikely, as stock options are usually granted with a fixed exercise price, not a fixed discount or guaranteed return. Option C is also unlikely, as the book value of a company's stock may not accurately reflect its current market value. Finally, option E is false, as stock option plans have specific rules around when and how shares can be purchased.

Under What Terms Can an Executive Buy Stock in a Stock