Given That D_n Is the Amount of Deferred Compensation Received

question 44

Multiple Choice

Given that D_n is the amount of deferred compensation received in lieu of $1 currently,which one of the following decision rules can the employee and the employer apply when evaluating whether deferred compensation is preferable to current salary?

• A)If the employee's indifference level of D_n exceeds the employer's indifference level of D_n,the employer will pay deferred compensation up to the employee's indifference level.
• B)If the employee's indifference level of D_n is less than the employer's indifference level of D_n,the employee will only receive a current salary because the employer will not pay the employee's required deferred compensation.
• C)If the employee's indifference level of D_n is less than the employer's indifference level of D_n,the employer can pay deferred compensation up to its indifference level.
• D)None of the decision rules in A,B,or C above hold true.

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Definitions:

Hedge Ratio

A ratio used to measure the proportion of a position that is hedged, indicating the effectiveness of a hedge against fluctuations.

Fair Value Hedge

A hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or some component thereof, that is attributable to a particular risk and could affect profit or loss.

Forward Contract

A customized contract between two parties to buy or sell an asset at a specified future date for a price that is agreed upon today.

Trade Payable

An amount owed by a business to its suppliers shown as a liability on the company's balance sheet.