Corporations by rewarding executives with large option positions:
A)cause the executives to hold highly undiversified portfolios.
B)put the firm in a risky position to pay off the options.
C)cause the value of the equity to fall because the options are theft.
D)are really valueless because most options are never exercised.
E)None of the above.

Question

Quizplus · Accepted Answer

Rewarding executives with large option positions causes them to hold highly undiversified portfolios because their wealth is concentrated in their employer's stock. This can lead to increased risk for both the executives and the company.

Corporations by Rewarding Executives with Large Option Positions