Institutional T/F important, companies, capital, individual

Wendy01

1, ESOPs have been used by companies to liquidate a large block of company stock held by an individual or small group of people.

True or False?


2, An important concern for ESOP participants is that their overall investments (both financial and human capital) reflect adequate diversification.

True or False?

Windjam

T, T after rereading question.

I don't get the wording it makes no sense.

ESOPS are very undiversified and represent huge amounts of the net worth of the participants. HC/FC highly correlated. Must use other methods to diversify.



Edited 2 time(s). Last edit at Monday, May 23, 2011 at 08:46PM by Paraguay.

mar350

1T
2 im not sure what u are asking, are u asking if they should be concerned ( then yes) or are u asking are they being concerned by participation (then no)
in any case i have to choose one so

F

Unforseen

1. True
2. False

Zestt

I would say false and true.

A company is not liquidating stock. The company actualluy buys the stock in the open market to push up the price.

Secondly for an ESOP plan, Diversification can become an issue, as a person can tie up too much of his financial capital in company stock, which is related to his human capital as well

bpdulog

Paraguay Wrote:
-------------------------------------------------------
> bpdulog Wrote:
> --------------------------------------------------
> -----
> > 1. True
> > 2. False - If they were concerned about
> > diversification, why are they in an ESOP in the
> > first place?
>
> The free money part of it is key. Generally if
> you are going to give me money for working
> somewhere I will take it.

Good point, but that seems like a secondary issue.

Their human capital is reliant on their employer, and through the ESOP, so is their financial capital.

NO EXCUSES

oneboy

ananda2 Wrote:
-------------------------------------------------------
> I would say false and true.
>
> A company is not liquidating stock. The company
> actualluy buys the stock in the open market to
> push up the price.
>
> Secondly for an ESOP plan, Diversification can
> become an issue, as a person can tie up too much
> of his financial capital in company stock, which
> is related to his human capital as well

1 is definitely true. Main purpose of an ESOP is to purchase a concentrated position from owners or founders on favorable tax terms. Generally there is a buttload of leverage involved as well.

mik82

Paraguay, your answer is the answer. Thanks for the explanation.

2. is from book2, p379....agreed, a wording problem.

canadiananalyst

true
true
their overall investments (both financial and human capital) reflect adequate diversification.should understand to be should reflect.

Colum

3, Disintermediation can occur when policyholders borrow against the accumulated cash value in insurance products, or the policyholders surrender their cash value life insurance policies for their accumulated cash values.

True or False?

4, Life insurance companies are particularly sensitive to the losses that can result during periods of rising interest rates. In these situations, the existence of valuation reserves alone is sufficient to prevent a write-down of surplus.

True or False?