NACVA CVA Exam - 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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Joseph

3 months ago

I thought there might be more to it than just time value.

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Antonio

4 months ago

Yup, B is definitely the right answer here.

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Audra

4 months ago

Wait, is that really how it works? Sounds too simple.

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Cammy

4 months ago

Totally agree, it's all about the time value then!

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Timmy

4 months ago

The strike price at fair market value means intrinsic value is zero.

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Myrtie

5 months 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.

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Glenna

5 months 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.

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Jordan

5 months 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.

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Frederick

5 months 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.

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Shaniqua

5 months 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.

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Ming

5 months 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.

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Adrianna

5 months 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.

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Fidelia

5 months 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.

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Brittani

5 months 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.

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Azalee

6 months 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.

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Evan

10 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

8 months ago

That makes sense, thanks for clarifying.

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Elvis

9 months ago

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

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Dianne

9 months ago

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

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Julianna

9 months ago

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

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Dorinda

10 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

9 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

9 months ago

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

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Pamela

9 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

10 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

9 months ago

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

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Becky

9 months ago

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

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Elza

9 months ago

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

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Hillary

11 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

9 months ago

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

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Louann

9 months ago

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

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Bronwyn

10 months ago

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

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Kathrine

11 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

11 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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