For "plain vanilla" options SAB 107 allows to use the ______ as the expected option term.

A. vesting period.
B. original contractual option term.
C. average of the two terms.

Correct Answer: C

The SEC Staff Accounting Bulleton No 107 provides additional guidance for companies when estimating an option's expected term. Companies are permitted to use historical stock option exercise experience to estimate expected term (with as few as one or two relatively homogeneous employee groupings) if it represents the best estimate of future exercise patterns. SAB 107 provides a simplified method to estimate expected term for "plain vanilla" stock options (as defined by SAB 107) that is calculated as the vesting period plus the original contractual option term divided by two.