Which of the Following Is a Solution to the Principal-Agent

question 1

Multiple Choice

Which of the following is a solution to the principal-agent problem within a firm?

• A) Provide the managers with shares in the company.
• B) Increase the managers' annual sales target.
• C) Increase the fixed component of an employee's salary.
• D) Allow the government to set rules on performance.

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Definitions:

Security's Value

The market worth or price at which a financial security, such as a bond or stock, can be bought or sold.

Future Cash Flows

Projected movement of money into and out of a business, essential for budgeting, financial planning, and investment analysis.

Future Cash Flows

The projected cash receipts and payments a company expects to incur over a certain period in the future.

Bond Ratings

Bond ratings are assessments made by credit rating agencies about the creditworthiness of a bond issuer, which affect the interest rates bonds carry.