Question

multiple select question

select all that apply

stock options _______. (check all that apply.)

are stock dividends in which additional shares equal to more than 20-25% of the shares outstanding are issued
are often given to employees as part of their compensation
provide the holder with the option to purchase stock at a specified price during a specified period of time
are a corporations option to issue both preferred and common stock

Explanation:

Define stock options

Stock options are financial instruments that grant the holder the right, but not the obligation, to purchase a specific number of shares of a corporation's stock at a predetermined price (the strike or exercise price) within a set timeframe.

Evaluate option 1

The first option states: "are stock dividends in which additional shares equal to more than 20-25% of the shares outstanding are issued." This describes a large stock dividend, not stock options. Therefore, this option is incorrect.

Evaluate option 2

The second option states: "are often given to employees as part of their compensation." Many corporations use employee stock options (ESOs) as a key component of compensation packages to align employee interests with those of shareholders. Therefore, this option is correct.

Evaluate option 3

The third option states: "provide the holder with the option to purchase stock at a specified price during a specified period of time." This directly matches the fundamental definition of a stock option. Therefore, this option is correct.

Evaluate option 4

The fourth option states: "are a corporation's option to issue both preferred and common stock." Stock options are held by individuals (such as employees or investors) giving them the right to buy stock, rather than being a corporate right to choose which class of stock to issue. Therefore, this option is incorrect.

Answer:

• are stock dividends in which additional shares equal to more than 20-25% of the shares outstanding are issued
• are often given to employees as part of their compensation (Correct answer)
• provide the holder with the option to purchase stock at a specified price during a specified period of time (Correct answer)
• are a corporation's option to issue both preferred and common stock