Typically,borrowers Have Superior Information Relative to Lenders About the Potential

question 51

Multiple Choice

Typically,borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called

• A)moral selection.
• B)risk sharing.
• C)asymmetric information.
• D)adverse hazard.

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Definitions:

Conversion Value

The monetary worth at which a convertible security (like convertible bonds) can be converted into a specified number of shares of common stock.

Call Price

The specified price at which a callable bond can be redeemed by the issuer before its maturity.

Mortgage-Backed Security Tranches

Portions of a mortgage-backed security segregated by risk, payment timing, or other characteristics to suit different investors.

Default Risk Exposure

The likelihood that a borrower will be unable to make required payments on their debt obligations.