Walter works for a large firm that produces software and has a capitalized value of $10 billion.This firm pays its employees,in part,with the company's stock,compensating Walter an additional thirty percent of his $50,000 annual salary worth of the company's stock.Which of the following is true?
A)This compensation scheme reduces the level of risk in his portfolio since he is employed at the same company.
B)This compensation scheme provides Walter a good means of minimizing financial risk since he can hold stock in his company rather than money in the bank.
C)To reduce his exposure to risk Walter should purchase more stock in his company if he believes more people will buy computers in the future.
D)To minimize risk Walter should sell the stock in his company and buy other assets to diversify his financial holdings.

Question

Quizplus · Accepted Answer

Walter is already taking on significant risk by relying on a single company for a significant portion of his salary. To minimize risk, he should diversify his financial holdings by selling some or all of his company stock and investing in a variety of assets, such as mutual funds or index funds, that are not tied to the performance of a single company. This will reduce his exposure to company-specific risks and help ensure that his overall portfolio is well-diversified.

Walter Works for a Large Firm That Produces Software and Has