Billy, the CEO of Movin On Up Company, was granted stock options with an exercise price of $55.00 per share. The following are the week-ending stock prices that occurred during the quarter: If Movin On Up engaged in the practice of backdating, which of the following is the most likely exercise price for Billy's options?

Question

Billy, the CEO of Movin On Up Company, was granted stock options with an exercise price of $55.00 per share. The following are the week-ending stock prices that occurred during the quarter:  If Movin On Up engaged in the practice of backdating, which of the following is the most likely exercise price for Billy's options?

Quizplus · Accepted Answer

Backdating is the unethical practice of retroactively changing the grant date of stock options to a date when the stock price was lower, thereby increasing the potential profit for the option holder. In this case, the stock prices for the quarter range from $52.50 to $60.00. If the company engaged in backdating, they would likely set Billy's exercise price at or near the lowest point within that range, which is $52.50. However, since $52.50 is not an option, the most likely exercise price for Billy's options would be the next lowest point, which is $56.82 (closest to $55.00). Therefore, the answer is D: $56.82.

Billy, the CEO of Movin on Up Company, Was Granted