Business, 06.10.2019 07:01, ahnaodoido384

Suppose a ceo has a compensation package which includes a bonus contingent on the firm's stock price. bonus is paid only if the stock price increases above $150 by the time when his contract expires in 6 months period. if the stock price is below $150 in 6 month, the ceo does not receive a bonus. current stock price of othe firm is $120, and it will likely remain at $120 for the next 6 months if the firm does not make an investment in one of the two risky projects. if the firm invests in project a, in 6 months the stock price can increase to $160 with 50% probability, or decline to $40 with 50%. if the firm invests in project b, then in 6 months the stock price can increase to $145 with 50% probability, or decline to $115 with 50%. the ceo can choose to invest in project a, or project b (but not both) or choose not to invest at all. which of the following statements are true? i. the firm's shareholders benefit if the ceo chooses project b. ii. a self-interested ceo will likely choose to take project a. iii. project a is better than project b because it produces higher expected stock price for the firm.

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Suppose a ceo has a compensation package which includes a bonus contingent on the firm's stock price...