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      Question

      ESOP grants vest if combined ROE and solvency ratio

      targets are met over 3 years. In Year 2, targets seem unachievable; in Year 3, they are exceeded and options vest. How should expense be recognized?
      A Reverse Year 1–2 expense permanently Correct Answer Incorrect Answer
      B Recognize nothing until vesting Correct Answer Incorrect Answer
      C Recognize cumulative catch-up in Year 3 to reflect actual vesting Correct Answer Incorrect Answer
      D Recognize straight-line ignoring expectations Correct Answer Incorrect Answer
      E Recognize only intrinsic value at exercise Correct Answer Incorrect Answer

      Solution

      For market/non-market vesting conditions, expense reflects best estimate with true-up when vesting outcome is known.

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