CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

To measure the fair value of a stock option, FASB suggests to use the ______ if all of the options are available.
A. observable market price of a comparable option.
B. price based on the Black-Scholes-Merton model.
C. the intrinsic value.
Explanation: When FAS 123 (R) was issued FASB acknowledged that such option might not be available.

User Contributed Comments 3

User Comment
akirchner1 This is actually not accurate according to the this year's CFA Institute book. It states that companies cannot rely on market prices of options to measure the fair value of stock options because the stock options features are different from traded options. It suggests to use a valuation model such as the Black Scholes options pricing model or a binomial model. This is under both IFRS and US GAAP.
linhgaga Agree with akirchner1! Just double checked on my curriculum and indeed it said that.
thecfaguy I would believe to use the observable market price if it is available.
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