Stock option: Stock option is a right but not obligation to buy or sell a stock at a predefined price. Stock option can also be described as a contract between two parties to buy or sell a stock at a predefined price Stocks (Common Stock and Preferred Stock): These are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions. To indicate: The reason why companies grant stock options to employees in lieu of a higher salary.

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Chapter 10, Problem 15DQ

To determine

Concept introduction:

Stock option:

Stock option is a right but not obligation to buy or sell a stock at a predefined price. Stock option can also be described as a contract between two parties to buy or sell a stock at a predefined price

Stocks (Common Stock and Preferred Stock):

These are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions.

To indicate:

The reason why companies grant stock options to employees in lieu of a higher salary.

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