Executive stock options are one way of rewarding executives.Restricted stock units are another way.Cash payments are yet another way.Consider the following two statements:
(i) Restricted stock units become more attractive compared to stock options as stock price volatility
Increases.
(ii) Cash payments become more attractive compared to restricted stock units as stock price
Volatility increases.
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, if we replace "more" with "less".

Question

Quizplus · Accepted Answer

(i) is incorrect because restricted stock units actually become more attractive compared to stock options as stock price volatility decreases. This is because restricted stock units have a fixed value, while stock options are more valuable when the stock price is volatile. 
(ii) is correct because as stock price volatility increases, the value of restricted stock units becomes less certain and more volatile, making cash payments a more attractive alternative.

Executive Stock Options Are One Way of Rewarding Executives