1. Employees who are granted options as part of their compensation hope that the price of the underlying stock will:
A)	Go down because then the options will buy more stock.
B)	Stay the same as when the option was granted so that they don't lose money when they cash them in.
C)	Go up – the higher the better – since the value to the employees is the difference between the strike price of the option and the value of the stock at the time of the transaction.
D)	None of the above. Options are not related to stock prices.

2. Options are only used for employee compensation.
A)	True
B)	False

3. There is a great deal of discussion currently about whether or not options should be expensed. Which type of companies have been most opposed to the idea of expensing options?
A)	Companies that have been established for long time and have a fair stable stock price.
B)	Private family-owned businesses.
C)	Relatively new high-tech firms.
D)	Highly unionized companies

4. If a company's stock price is very volatile, it would make determining the cost of expensing options
A)	More difficult
B)	Easier
C)	Volatility of the stock price is not an issue when determining how much of a charge a company would need to take if it expensed options.

5. Those who argue against the idea of expensing options argue that:
A)	The real expense is to shareholders rather than the company. Exercised options dilute the value of existing shares rather than being an expense to the company.
B)	Granting options does not affect cash flow and therefore should not appear on the income statement.
C)	Without a standard way to determine the value of options, companies will use different techniques and it will be more difficult to compare how companies are actually performing than it is now.
D)	All of the above
E)	None of the above

6. Those who argue in favor of expensing options argue that:
A)	Options are a real form of compensation expense, and therefore should be recognized as such on the income statement.
B)	Expensing options will give investors a more complete and transparent picture of where the company stands financially.
C)	Expensing options can help improve corporate governance.
D)	All of the above
E)	None of the above

7. If a company ends up overstating the cost of options one year, it can add the difference back into its income stream the next year.
A)	True
B)	False

8. Which of the following people has been the most vocal lately about the need to expense options?
A)	Warren Buffett
B)	Bill Gates
C)	Ross Perot
D)	Kenneth Lay

9. Companies that give options as a form of compensation instead of just paying people more cash say they do so because:
A)	It aligns the interests of the employees with the interests of other shareholders. Both want the company to do well so that the price of the stock will rise.
B)	New start-up companies do not have the cash flow to pay good employees, especially executives, what the market can pay them elsewhere. Options provide an alternative way to attract top talent.
C)	Both of the above
D)	Neither of the above

10. If a company does not expense its options, it still must disclose how many are outstanding and report earnings on the basis of fully-diluted shares.
A)	True
B)	False