Corporations by rewarding executives with large option positions:
A) cause the executives to hold highly undiversified portfolios.
B) put the firm in a risky position to pay off the options.
C) cause the value of the stock to fall because the options are theft.
D) are really valueless because most options are never exercised.

Question

Quizplus · Accepted Answer

Rewarding executives with large option positions often results in them holding highly undiversified portfolios because their wealth becomes too closely tied to the company's stock performance. This can discourage risk diversification, which is a fundamental principle of investment.

Corporations by Rewarding Executives with Large Option Positions