Executive options do not always have the intended effects.Consider the following two statements: (i) The recent shift from executive share options to restricted stock units suggest that in practice, the
Effective minimum value of executive share options is not zero.
(ii) When options are a large portion of an executive's net worth, the total value of the option
Position to the executive is less than market value.
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, but only if zero is replaced with "negative".

Question

Quizplus · Accepted Answer

Both statements are correct. The shift to restricted stock units indicates that the perceived value of executive share options is not zero, as they provide a guaranteed value unlike options which can expire worthless. Additionally, when a large portion of an executive's net worth is in options, the risk and potential for loss mean the executive may value them less than their market value, due to risk aversion and concentration of wealth in a single company's stock.

Executive Options Do Not Always Have the Intended Effects