If a Firm's Owner Is Better Able Than the Sales

question 16

Multiple Choice

If a firm's owner is better able than the sales staff to bear the risk of a recession, weak incentives:

• A) are worse than strong incentives.
• B) may be better than strong incentives.
• C) should not be used.
• D) would not be profitable.

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Definitions:

Stock Split

A corporate action that increases the number of a corporation's outstanding shares by dividing each share, which in turn diminishes its price.

American Call Option

A financial derivative allowing the buyer the right, but not the obligation, to buy a specific stock or asset at a predetermined price within a certain time period.

Underlying Asset

The security or asset on which a derivative contract is based, influencing its value and characteristics.

Exercise Price

The predetermined price at which an option's underlying asset can be bought or sold.