Moral Hazard Is Not Eliminated in Debt Financing Because

question 32

Multiple Choice

Moral hazard is not eliminated in debt financing because

• A)borrowers have an incentive to assume greater risk than is in the interest of the lender.
• B)firms with a great deal of debt often go bankrupt.
• C)principal-agent problems are greater with debt financing than with equity financing.
• D)the use of restrictive covenants tends to increase moral hazard.

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Definitions:

Protein Packages

Specialized structures within cells designed to transport, store, or degrade proteins as needed for various cellular functions.

Endoplasmic Reticulum

A network of membranes within cells that is involved in protein and lipid synthesis.

Cell Membrane

The lipid bilayer that surrounds a cell, regulating the entry and exit of substances.

Concentration of Ions

The measure of the number of ions in a particular volume of fluid, indicating the electrical conductivity and chemical properties of the fluid.