The Adverse Selection Process Is Prevalent in the Used Car

question 56

Multiple Choice

The adverse selection process is prevalent in the used car market because

• A) only poorer people are likely to purchase used cars.
• B) sellers know more about the vehicles being sold than do potential buyers.
• C) the price of the car sends a signal about its quality.
• D) so many consumers are adverse to buying used cars.

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Definitions:

Active

In finance, refers to a management strategy involving regular buying and selling of assets to outperform the market, opposite of passive strategies like indexing.

Coupon Rate

The annual interest rate paid on a bond, expressed as a percentage of the bond's face value, to its holders.

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates, typically expressed in years.

Par Value

The nominal or face value of a bond, stock, or other financial instrument, representing the value at which it will be redeemed at maturity or the value on which dividends or interest are calculated.