The Principal-Agent Problem Arises

question 20

Multiple Choice

The Principal-Agent Problem arises:

• A)because managers have little incentive to work in the interest of shareholders when this means working against their own self-interest.
• B)because of the separation of ownership and control in a corporation.
• C)Both A and B
• D)None of the above

---

Definitions:

Put Option

A financial contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Stock Price

The cost of purchasing a share of a company, which fluctuates based on supply and demand in the stock market.

Exercise Price

The predetermined price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Stock Volatility

A statistical measure of the dispersion of returns for a given stock or market index, typically used to quantify the risk of a stock or market's return.