Compared to 2009 net income as reported, if XYZ had used the same expected volatility assumption for its 2009 option grants that it had used in 2008, its 2009 net income would have been:

A. lower.

B. higher.

C. the same.

XYZ SA, a hypothetical company, offers its employees a defined benefit pension plan. Information on XYZ’s retirement plans is presented in Exhibit 2. It also grants stock options to executives. Exhibit 3 contains information on the volatility assumptions used to value stock options.

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EXHIBIT 2 XYZ SA Retirement Plan Information 2009 Employer contributions Current service costs Past service costs Discount rate used to estimate plan liabilities Benefit obligation at beginning of year Benefit obligation at end of year Actuarial loss due to increase in plan obligation 1,000 200 120 7.00% 42,000 41,720 460