Question

With reference to the relationship between stock prices and options values, explain what boards of directors...

With reference to the relationship between stock prices and options values, explain what boards of directors are trying to achieve when they award CEOs options as part of their executive compensation packages.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

By awarding the CEOs options, the BoD is trying to link the earnings of the CEO to the performance of the company stock. The call options will only be valuable to the CEO if the current market price is above the strike price of the option. Hence, the CEO will always work towards improving the stock price of the company which would in return benefit all shareholders of the company. At the same time, if the CEO does not perform well, the CEO does not benefit from exercising the options. Hence, Options are given as an incentive to the CEOs and restrains them taking any decision which would adversely affect the stock prices of the company.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1.) As with options, the relationship between futures prices and spot prices tend to be kept...
1.) As with options, the relationship between futures prices and spot prices tend to be kept in check by what? 2.) The price of goods today is the price that one could buy it at in the ___________ or _________ market. 3.) If you sell a futures contract and are assigned at expiration, what actually occurs?
On October 15, 2015, the board of directors of Ensor Materials Corporation approved a stock option...
On October 15, 2015, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2016, 19 million stock options were granted, exercisable for 19 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2019, and December 31, 2021, at 90% of the quoted market price on January 1, 2016, which was $20. The fair value of the 19 million options, estimated by an appropriate option...
The relationship between risk-free interest rates and stock prices，such as what reason lead to stock price...
The relationship between risk-free interest rates and stock prices，such as what reason lead to stock price to fall，use your own word，thanks.
2. What is the relationship between marginal utilities and prices when you are maximizing your satisfaction?...
2. What is the relationship between marginal utilities and prices when you are maximizing your satisfaction? (Your answer must include a discussion of budget constraints, the choice of the consumption bundle with the highest satisfaction, marginal utilities and use your answers in previous question.) (Part II: Budget Constraint) Put meat on horizontal and potatoes on vertical axis. 1. (Day 1) Suppose your income is $1000, prices of meat and potatoes are $10 and $20, respectively. Find the budget constraint equation...
1. What relationship did Ehrlich expect there to be between commodity prices and population growth? 2....
1. What relationship did Ehrlich expect there to be between commodity prices and population growth? 2. Who won the bet in 1990? Was the winner “lucky” or “right”, or both? Explain your answer in 2 or 3 sentences.
Explain what a theoretical plate is. What is the relationship between the number of theoretical plates...
Explain what a theoretical plate is. What is the relationship between the number of theoretical plates and resolution? How is theoretical plate height related to resolution? Now quantitatively, answer the following question: how many theoretical plates, N, must a packed column have to achieve a resolution of 1.5 between 2 peaks that elute at 5.42 minutes and 5.63 minutes. At a resolution of 1.5 are these peaks considered resolved?
What happens to Stock Prices’ when a company’s announces a  bond downgrade? Please explain.
What happens to Stock Prices’ when a company’s announces a  bond downgrade? Please explain.
Do you believe that stock prices are too volatile? Be sure to explain what you mean...
Do you believe that stock prices are too volatile? Be sure to explain what you mean when you say “volatility” and “too much.”
2. Agency conflicts between managers and shareholders Remember, an agency relationship can degenerate into an agency...
2. Agency conflicts between managers and shareholders Remember, an agency relationship can degenerate into an agency conflict when an agent acts in a manner that is not in the best interest of his or her principal. In large corporations, these conflicts most frequently involve the enrichment of the firm’s executives or managers (in the form of money and perquisites or power and prestige) at the expense of the company’s shareholders. This usurping and reallocation of shareholder wealth is most likely...
what is the relationship between total utility and marginal utility? Explain why total utility is maximized...
what is the relationship between total utility and marginal utility? Explain why total utility is maximized and when maginal utility is equal to zero
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT