Problems with Stock Options Include All EXCEPT

question 11

Multiple Choice

Problems with stock options include all EXCEPT:

• A)A CEO might forego increasing dividends to use the cash to try and increase the stock price.
• B)CEOs accept riskier projects because that usually causes the stock price to increase.
• C)Option payoffs are closely related to the performance of the overall stock market.
• D)CEOs will work hard to increase the stock price when they receive stock options.
• E)There are no problems with using stock options to incent CEOs.

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Definitions:

Market Sector

A segment of the economy into which large groups of businesses and companies can be categorized based on their business activities.

Deadweight Losses

The loss of economic efficiency that can occur when equilibrium for a good or service is not achieved.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, typically measured as a percentage increase in real GDP.

Income Transfers

Transfers of money from one group to another not in exchange for goods or services, typically through government programs aimed at redistributing wealth.