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To: Elmer Phud who wrote (177808)	5/6/2004 7:56:07 PM
From: ptanner	Read Replies (2) \| Respond to of 186894

re: "A zero coupon bond will be paid interest..." I thought a zero coupon bond was one that paid no interest but instead would be offered at a discount to the face value. re: "The option is not guaranteed of ever having any tangible value. Until the grantor suffers an expense there just isn't any expense. IMO. " This is all included within the valuation of the option grants through Black-Scholes. Certainly taking the expense charge at the time of exercise would provide a definitive value for the expense -- and sometimes this would be zero but more often it would be much more substantial than the volatility adjusted, time premium discounted valuation at the time of issuance. Care to look at what for example Intel's option program would have cost last year based on those exercised relative to the 10K valuation of those granted? Different question. Does the options expense occur at the time of granting or vesting? I would think the latter but haven't tried to read the FASB docs. -PT

To: Elmer Phud who wrote (177808)	5/6/2004 8:07:48 PM
From: Robert O	Read Replies (1) \| Respond to of 186894

No I don't see. A zero coupon bond will be paid interest so you can calculate it because you know what it will be. The option is not guaranteed of ever having any tangible value. Until the grantor suffers an expense there just isn't any expense. IMO. ################## Ahh I see the problem. You need to apply a little statistical probability reasoning to this issue. Just for sake of argument and ease if I told you that a one year option at grant could not be valued exactly but could be estimated by applying statistical methods that had, say, a 90% confidence interval and there was: a 10% chance the option would be valueless after one year a 30% chance the option would be worth $800 after one year a 60% chance the option would be worth $1,500 after one year would you still claim that since there is SOME probability it will be worth zero in a year we MUST assume zero expense until the year is up (in real world much longer than a year)??? RO

To: Elmer Phud who wrote (177808)	5/6/2004 8:15:41 PM
From: rkral	Respond to of 186894

OT .. elmerp, re "It's ironic that there can be value to the receiver but no expense to the grantor but that's the way it looks to me." That's a strong indication one of the conclusions is incorrect. Ron

To: Elmer Phud who wrote (177808)	5/7/2004 1:39:04 PM
From: williamlp	Read Replies (1) \| Respond to of 186894

This is reasoning that leads to absurdities. It's not of tangible value unless the share price rises. If there is no tangible expense to the grantor then I just don't see any expense. It's ironic that there can be value to the receiver but no expense to the grantor but that's the way it looks to me. A stock is purely "air" and goodwill until it pays dividends equal to its value, under this reasoning. If I give away $100,000 of stock, this is an expense. If, instead of giving you $100,000 cash pay, I give you options which are valued by the market at $100,000, this is the same effect on my finances. Because I could have, instead of giving you the options, sold them at fair market value for $100,000. After I give you the options, you can sell them at market value too. The next effect has the same impact on my finances (modulo commissions and slippage) as if I just sold the options and gave you the money: I have $100,000 less than I would have if I'd given the options to the market, you have $100,000 more by selling them to the market. To draw any other conclusion other than that this is a $100,000 expense is quite absurd. Because something with the same result as giving cash should be treated the same way as expense. I've given you something with $100,000 fair market value which can be bought and sold for that amount. Options have market value at any given time. ($20 calls, for instance, have more value if the stock price is 20 than if it is 15, as determined by the market, even though there is a good chance both could eventually be worthless.