Executives are often very heavily invested in their own stock.To mitigate the effects of this concentration,which of the following actions could they take?

Question

Quizplus · Accepted Answer

All the options listed are strategies that executives can use to hedge against the risk of having a large portion of their wealth tied up in their own company's stock. Equity swaps (both A and B) allow them to exchange the returns of their own stock for either a fixed return (like Libor) or the returns of a broader market index, thus diversifying their risk. Buying collars (C) is another strategy that involves purchasing put options and selling call options on their stock, which provides a range within which they can protect themselves against significant losses while also limiting potential gains.

Executives Are Often Very Heavily Invested in Their Own Stock