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Basic Question 33 of 40
Assume that the exercise price of an option is $6 and the average market price of the stock is $10. Assuming 802 options are outstanding during the entire year, what is the number of shares to be added to the denominator of the diluted EPS?
B. 481
C. 286
A. 321
B. 481
C. 286
User Contributed Comments 9
| User | Comment |
|---|---|
| tinku | I guess exercise price is strike price. If it is, you get the stocks for the Strike price. So 802 options will be converted to stocks. Where does the 4812/10 come from? |
| LogicMan | Yes the exercise price is strike price. 4812 is the option revenue when all 802 option holders exercise their options. That is they will buy 802 shares at $6. |
| xxxx | also agree with B. : if call price < current (average) price -> all options will be executed |
| cutehinano | # of options * intrinsic value of each option / market price of stock = 802 * 4 / 10 = 321 shares |
| YOUCANDOIT | So 802 shares are added when investors convert their warrants. But the firm uses the funds they receive from the warrants to repurchase shares in the market (802 warrants x $6 conversion price)/$10 mkt share price = 617 shares repurchased 802 shares added - 481 shares repurchased = 321 shares added |
| bidisha | thanks cute |
| johntan1979 | If you didn't get question 28, you won't get this one too. |
| intotherye | I did choose A, but isn't an option contract written on 100 shares of the underlying stocks? So if you exercise 802 options you have to buy 80200 shares unless it is a mini option. |
| farhan92 | using Gina's method from the previous example (802*4)/10 |
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Edward Liu
Learning Outcome Statements
describe how earnings per share is calculated and calculate and interpret a company's basic and diluted earnings per share for companies with simple and complex capital structures including those with antidilutive securities
CFA® 2024 Level I Curriculum, Volume 2, Module 2.