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Free ABV Exam Braindumps (page: 34)

Page 33 of 87
PDF with 344 Questions

The advantages of the binomial model over the Black-Scholes model and its variations include:

  1. The binomial model's ability to incorporate a variety of conditions which can increase accuracy, including variations in expected volatility, dividends rates and risk-free discount rates as well as transaction costs.
  2. The binomial model can be quite useful for valuing employee stock options as it is possible to include potential dilution, blackout periods, delayed vesting provisions, early exercise patterns and employee turnover in the model by increasing the number of periods and adjusting the option values at each node
  3. Binomial model does not require more computations
  4. Binomial Model does not have any liquidity problem

Answer(s): A,B



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 _.

  1. One Value, market value
  2. Zero value, time value
  3. Current market value, zero value
  4. Par value, zero value

Answer(s): B



Income that is eventually derived from the qualified stock option (QSO) is determined to be ordinary income if the receipt exercises the option to buy the underlying securities and subsequently sells the securities within 12 months. To get a tax break:

  1. The owner must hold the shares for at least one year
  2. The reader should consult a tax advisor regarding any possible tax consequences
  3. Business valuation professional is to estimate the fair market value
  4. The ISO must have been granted at least two years before the stock is sold

Answer(s): A,D



Under the asset approach, the value of the corporation's investment in common stock is the common stock's fair market value on the valuation date:

  1. Less the potential income taxes payable on the sale of this stock
  2. Less the potential income taxes payable to hedge the stock
  3. Plus the potential income taxes payable on the sale of this stock
  4. Less the potential income taxes payable on short selling

Answer(s): A






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