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Stockholders Equity

?

In accounting for stock-based compensation, what interest
rate is used to discount both the exercise price of the option and
the future dividend stream?

The firm’s known incremental borrowing rate.
The current market rate that firms in that particular industry
use to discount cash flows.
The risk-free interest rate.
Any rate that firms can justify as being reasonable.

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

(c) The rate of interest used to discount both the exercise
price and dividends is the risk-free interest rate.

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