1. 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 is above $150 at 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 $140, and it will likely remain at $140 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 $360 with 40% probability, or decline to $130 with 60%. If the firm invests in project B, then in 6 months the stock price can increase to $155 with 50% probability, or decline to $100 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. Project A is better for the firm's shareholders than project B because it produces higher expected stock price for the firm.

   II. A self-interested CEO will likely choose to take project A.

   		I and II
   		None of the above
   		II only
   		I only