Hedge fund managers receive incentive bonuses when they increase portfolio assets beyond a stipulated benchmark but lose nothing when they fail to perform. This is equivalent to ________.

Question

Quizplus · Accepted Answer

Receiving a free call option is equivalent because the hedge fund managers gain from the increase in portfolio value (like exercising a call option for profit) without any cost or loss if the portfolio underperforms (no loss akin to not exercising a free call option).

Hedge Fund Managers Receive Incentive Bonuses When They Increase Portfolio