Which of the Following Ensures That Managers Are Rewarded Only

question 13

Multiple Choice

Which of the following ensures that managers are rewarded only when a company performs better than its competitors?

• A) A constant strike price for executive stock options
• B) A strike price that increases with time
• C) A strike price that changes in line with an index of stock prices
• D) A strike price that is tied to reported profit

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Definitions:

Beta Coefficient

An index of a security's fluctuation in value as compared to the broader market, signifying its relative risk versus the average market risk.

Characteristic Line

In finance, a line that describes the relationship between the returns on a stock and the returns on the market, used in the Capital Asset Pricing Model (CAPM).

Stable Equilibrium

A state in which a system, once disturbed, returns to its original condition because the equilibrium is stable.

Expected and Required Returns

The returns that investors anticipate or demand from an investment considering its risk, often guiding investment decisions.