Which of the following statements in relation to modifications to the terms and conditions on which equity instruments were granted as part of an employee share scheme is correct?
A) A reduction in the exercise price of options will reduce the fair value of the share options.
B) A reduction in a performance hurdle relating to profitability targets will reduce the fair value of the options.
C) A shortening of the vesting period will increase the fair value of the share options.
D) An increase in the number of equity instruments granted is not an example of a modification.

Question

Quizplus · Accepted Answer

Shortening the vesting period means the options will be exercisable earlier, which increases the likelihood of the options being in-the-money and increases their fair value. A reduction in exercise price or a reduction in performance hurdles would increase the value of the options, not decrease it. Increasing the number of equity instruments granted is also an example of a modification.

Which of the Following Statements in Relation to Modifications to the Terms