NACVA Exam CVA Topic 6 Question 92 Discussion

Actual exam question for NACVA's CVA exam

Question #: 92
Topic #: 6

[All CVA Questions]

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 __________.

AOne Value, market value

BZero value, time value

CCurrent market value, zero value

DPar value, zero value

Show Suggested Answer

Suggested Answer: A, B, C

by Felix at Jul 17, 2024, 02:31 AM

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Evan

3 months 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.

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Clare

2 months ago

That makes sense, thanks for clarifying.

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Elvis

2 months ago

Actually, I agree with Hillary. The answer is C) Current market value, zero value.

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Dianne

2 months ago

I disagree, I believe it is B) Zero value, time value.

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Julianna

3 months ago

I think the answer is A) One Value, market value.

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Dorinda

3 months 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!

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Mel

2 months ago

Exactly, it's all about that time value when the strike price is set at fair market value.

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Yun

3 months ago

That makes sense. So the only value left is the time value of the option.

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Pamela

3 months ago

I think the answer is B too. The intrinsic value is zero when the strike price is at fair market value.

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Denae

3 months 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.

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Nan

2 months ago

That makes sense, the market value would be the only value in that case.

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Becky

3 months ago

Yeah, if the strike price equals the fair market value, then the intrinsic value is one value.

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Elza

3 months ago

I think you're right, A seems to be the correct answer.

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Hillary

4 months 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.

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Charlena

2 months ago

Exactly, setting the strike price at fair market value eliminates any intrinsic value.

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Louann

2 months ago

So the only value left would be the market value of the shares.

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Bronwyn

3 months ago

I think you're right, the intrinsic value would be zero in that case.

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Kathrine

4 months ago

But setting the strike price at fair market value means the intrinsic value is zero, so it must be B.

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Carisa

4 months 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.

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