In 2017,a company employee received an option to purchase the company's stock at $45 per share.If the stock is trading at $40 a share in 2019,the employee will most likely
A) exercise the option,receiving a gain of $5.
B) exercise the option,receiving a gain of $40.
C) not bother to exercise the options.
D) buy the stock at $45 per share.
E) sell the shares to a third party slightly above the market price.

Question

Quizplus · Accepted Answer

It is not advantageous for the employee to exercise the option since the market price of the stock ($40) is lower than the exercise price ($45). Therefore, it would not make sense to pay $45 for something that can be bought at a lower price in the market. Additionally, selling the option to a third party slightly above the market price is not feasible since the option is already out of the money. The best choice for the employee is to not bother exercising the option.

In 2017,a Company Employee Received an Option to Purchase the Company's