1. Which one of the following statements about option compensation is NOT TRUE?
Stock options are considered to be very effective at rewarding executives based on actual firm performance rather than general market conditions.
The motive for a CEO to backdate options is that it allowed him or her to exercise the options at a lower exercise price.
One measure used by firms to prevent option abuse is to require executives to hold them for several years before exercising them.
Backdating implies that CEO (or other executives) reset the date that their options were granted to a different date.
2. Which of the following is NOT TRUE with respect to market-makers?
They earn the difference between the bid price and the ask price on a transaction.
They execute stock option transactions for customers.
They are not subject to the risk of loss on their positions in options.
They may earn profits when they take positions in options.