Although Debt Contracts Require Less Monitoring Than Equity Contracts,debt Contracts

question 90

Multiple Choice

Although debt contracts require less monitoring than equity contracts,debt contracts are still subject to ________ since borrowers have an incentive to take on more risk than the lender would like.

• A)moral hazard
• B)agency theory
• C)diversification
• D)the "lemons" problem

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Definitions:

Clarity

The quality of being clear, understandable, and easy to interpret or see.

Shorten Sentences

A writing technique that involves reducing the length of sentences to improve clarity and readability.

Nouns

Words that identify people, places, things, or ideas, serving as the subject of a sentence or clause in language.

Parallel Construction

The use of consistent grammatical structures in writing or speech to present ideas of equal importance.