A Debt Contract Is Incentive Compatible

question 87

Multiple Choice

A debt contract is incentive compatible

• A)if the borrower has the incentive to behave in the way that the lender expects and desires,since doing otherwise jeopardizes the borrower's net worth in the business.
• B)if the borrower's net worth is sufficiently low so that the lender's risk of moral hazard is significantly reduced.
• C)if the debt contract is treated like an equity.
• D)if the lender has the incentive to behave in the way that the borrower expects and desires.

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Definitions:

Mydriatic

Relating to the dilation of the pupil, often due to medication or specific health conditions.

Mydriat

Often refers to mydriasis, the dilation of the pupil of the eye caused by disease, trauma, or the use of certain drugs.

Dilation

The action of expanding or being expanded in diameter or volume; in medical contexts, it often refers to the expansion of a passage or cavity.

Phacoemulsification

A modern cataract surgery technique using ultrasonic energy to emulsify the eye's lens before its removal and intraocular lens implantation.