- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 5. Earnings per Share
CFA Practice Question
In calculating EPS, warrants are NOT similar to traded options in that ______
II. both depend on changes in the underlying stock to determine value
III. warrants affect the number of shares outstanding but traded options don't.
I. both have exercise prices
II. both depend on changes in the underlying stock to determine value
III. warrants affect the number of shares outstanding but traded options don't.
Correct Answer: III only
User Contributed Comments 12
| User | Comment |
|---|---|
| ivasonik | Why? Does any of them really affect number of shares outstanding? |
| charliedba | Traded options do not affect the number of shares outstanding. Warrants do. |
| gkobylko | Warrans are issued by the Company. Traded options are issued by 3rd parties. |
| AkuK | "Traded options" is the trick |
| nayagan | gkobylko correct |
| bundy | total trick question. |
| crunty | Options do but 'Traded options' dont because you are trading the option with another dealer for its own intrinsic value. |
| Saxonomy | crunty for president |
| jonan203 | traded options are contracts between investors/hedgers and traded on exchanges, the company is not involved. |
| vfelix26 | Read the way the question is written, "NOT" similar.. I & II are immediately out because of the way they are worded, "Both." |
| Inaganti6 | the question answers itself but why the answer is right is beyond me. I still don't get it. |
| Inaganti6 | Oh ok I get it. It seems traded options are totally out of the sphere of the company's issuance and control. They are derived from the shares the company issued officially and have no bearing on the company's capital structure as they're private agreements between private parties. |