Over the past four years, Denise Smart was granted the right to buy 1,000 shares of her company's $20 par-value common stock at $65 per share. The price of the common stock is currently $48 per share. Smart's stock options are considered
A) worthless.
B) short-term losses.
C) underwater.
D) sunk investments.
E) none of the above.

Question

Quizplus · Accepted Answer

Smart's stock options are considered "underwater" because the current market price of the stock ($48 per share) is less than the price at which the stock options allow her to buy the shares ($65 per share). This means she would lose money by exercising her options, hence they are underwater.

Over the Past Four Years, Denise Smart Was Granted the Right