An option is a right to buy or sell and not an obligation. Many employers offer

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An option is a right to buy or sell and not an obligation. Many employers offer their employees’ stock options. Thus, employees have the right not obligation to buy the company stocks. Most employers offer their employees the stock at discount. For example, if a company’s stock is trading at $100 and the company offers 20% discount to its employees, employees who participate in employee stock options will purchase the stock at $80.
The rationale behind granting stock options is to induce employees to work harder and be more productive. As the stock price increases (presumably due to their hard work), the employees share in this added wealth. Another way to share this wealth would be to grant shares of stock, rather than options.
Read Chapters 5 and 6.
Prepare to discuss stock options from the point of view of the employee and the company:
What are the advantages and disadvantages of using stock options rather than shares of stock as employee incentives?
Which way would you prefer your company share their wealth? Why?
If you personally had some stock options in your company, and the stock price went down, would you be less motivated to work hard?
Brigham, E. F., & Daves, P. R. (2015). Intermediate Financial Management (12th Edition). Cengage Learning US. https://slingshot.vitalsource.com/books/9781305480698

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