Executive Stock Options Are One Way of Rewarding Executives

question 15

Multiple Choice

Executive stock options are one way of rewarding executives.Restricted stock units are another way.Cash payments are yet another way.Consider the following two statements:
(i) Restricted stock units become more attractive compared to stock options as stock price volatility
Increases.
(ii) Cash payments become more attractive compared to restricted stock units as stock price
Volatility increases.

• A)(i) is correct, (ii) is incorrect.
• B)(i) is incorrect, (ii) is correct.
• C)Both (i) and (ii) are correct.
• D)Both (i) and (ii) are incorrect.
• E)only (i) is correct, if we replace "more" with "less".

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Definitions:

Operating Costs

Expenses directly related to the day-to-day functioning of a business, excluding costs associated with financing or investments.

Preferred Dividends

Payments made to preferred shareholders before common shareholders receive any dividends.

After-Tax Income

The net income an individual or corporation receives after all income taxes have been deducted from gross income.

Common Shareholders

Individuals or entities that own common shares in a corporation, granting them voting rights and a share in the company’s profits via dividends.