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In creating employee stock options, the issuing company usually endeavors to set the option's strike price at the fair market value of the underlying shares. When the strike price is set at the fair market value, the intrinsic value is ________, and the only value of the option is its __________.
Suggested Answer: A, B, C
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39 comments · newest first
JO
Joseph
11 months ago
I thought there might be more to it than just time value.
AN
Antonio
11 months ago
Yup, B is definitely the right answer here.
AU
Audra
11 months ago
Wait, is that really how it works? Sounds too simple.
CA
Cammy
12 months ago
Totally agree, it's all about the time value then!
TI
Timmy
12 months ago
The strike price at fair market value means intrinsic value is zero.
MY
Myrtie
1 year ago
I’m a bit confused about the terms, but I think if the strike price is at fair market value, the intrinsic value is zero. I just can't remember the exact wording for the second part.
GL
Glenna
1 year ago
This reminds me of a practice question where we discussed intrinsic and time value. I think the answer is B, zero value and time value.
JO
Jordan
1 year ago
I'm not entirely sure, but I feel like the intrinsic value being zero makes sense. I think the option's value would then be its time value.
FR
Frederick
1 year ago
I remember that when the strike price equals the fair market value, the intrinsic value is zero. So, I think the second part is about time value.
SH
Shaniqua
1 year ago
This is a classic options pricing question. When the strike price is set at the fair market value, the intrinsic value is zero, and the only value of the option is the time value. The answer is B - zero value, time value.
MI
Ming
1 year ago
I'm a little confused on this one. I know the strike price is supposed to be set at the fair market value, but I'm not sure how that affects the intrinsic and time value of the option. I'll have to review my notes to make sure I understand this concept.
AD
Adrianna
1 year ago
Hmm, this seems like a tricky one. I'll need to think through the relationship between the strike price, fair market value, and the different components of option value.
FI
Fidelia
1 year ago
Okay, I think I've got this. If the strike price is set at the fair market value, then the intrinsic value must be zero, and the only value of the option is the time value. The answer has to be B.
BR
Brittani
1 year ago
I'm a bit confused by this question. The wording is a bit vague, and I'm not entirely sure what the purpose of that setting is. I'll have to read through the options carefully.
AZ
Azalee
1 year ago
Hmm, this seems like a tricky one. I'll need to carefully review the audit standards to make sure I understand the types of client representations the auditor would typically obtain.
EV
Evan
1 year ago
Ah, the classic 'set the strike price at fair market value' question. I'm going to have to agree with Hillary on this one - the answer is C. The intrinsic value is zero, and the only value is the current market value of the underlying shares.
CL
Clare
1 year ago
That makes sense, thanks for clarifying.
EL
Elvis
1 year ago
Actually, I agree with Hillary. The answer is C) Current market value, zero value.
DI
Dianne
1 year ago
I disagree, I believe it is B) Zero value, time value.
JU
Julianna
1 year ago
I think the answer is A) One Value, market value.
DO
Dorinda
1 year ago
Haha, this question is a real brain-teaser! I'm going to have to go with B though - when the strike price is at the fair market value, the intrinsic value is zero, and the only value is the time value. Easy peasy!
ME
Mel
1 year ago
Exactly, it's all about that time value when the strike price is set at fair market value.
YU
Yun
1 year ago
That makes sense. So the only value left is the time value of the option.
PA
Pamela
1 year ago
I think the answer is B too. The intrinsic value is zero when the strike price is at fair market value.
DE
Denae
1 year ago
Hmm, I'm going to go with A on this one. If the strike price is set at the fair market value, then the intrinsic value is one value, and the market value of the option is the only value.
NA
Nan
1 year ago
That makes sense, the market value would be the only value in that case.
BE
Becky
1 year ago
Yeah, if the strike price equals the fair market value, then the intrinsic value is one value.
EL
Elza
1 year ago
I think you're right, A seems to be the correct answer.
HI
Hillary
2 years ago
I'm pretty sure the answer is C. If the strike price is set at the fair market value, then the intrinsic value of the option is zero, and the only value it has is the market value of the underlying shares.
CH
Charlena
1 year ago
Exactly, setting the strike price at fair market value eliminates any intrinsic value.
LO
Louann
1 year ago
So the only value left would be the market value of the shares.
BR
Bronwyn
1 year ago
I think you're right, the intrinsic value would be zero in that case.
KA
Kathrine
2 years ago
But setting the strike price at fair market value means the intrinsic value is zero, so it must be B.
CA
Carisa
2 years ago
I think the answer is B. When the strike price is set at the fair market value, the intrinsic value is zero, and the only value of the option is its time value. Time value is the value of the option due to the possibility of the price increasing before the option expires.
OR
Oretha
1 year ago
Time value is the value of the option due to the possibility of the price increasing before the option expires.
PE
Penney
1 year ago
When the strike price is set at the fair market value, the intrinsic value is zero, and the only value of the option is its time value.
SY
Sylvie
1 year ago
I think the answer is B.
AL
Alpha
2 years ago
I disagree, I believe the answer is B) Zero value, time value.
KA
Kathrine
2 years ago
I think the answer is A) One Value, market value.