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 being heavily invested in their own company's stock. Equity swaps, whether for Libor returns or returns on a broad equity index, allow executives to diversify their exposure without selling their stock, which might signal a lack of confidence in their company. Buying collars, which involve purchasing put options and selling call options on the stock, can also protect against downside risk while potentially limiting upside gains.

Executives Are Often Very Heavily Invested in Their Own Stock