An Effective Way to Align Bank Managers' Interests with Shareholders

question 10

True/False

An effective way to align bank managers' interests with shareholders' goal of higher returns is to compensate the managers with fixed salaries without a bonus.

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Definitions:

Market Rate

The prevailing interest rate available in the marketplace for securities, loans, and deposits.

Coupon Rate

The interest rate on a bond, representing the annual interest payment made by the bond issuer relative to the bond's face value.

Amortization

The gradual reduction of a debt or the spreading out of the cost of an intangible asset over its useful life.

Discount

A reduction from the usual cost of something, often applied to encourage sales or offered to certain groups.