________ Arises When One Party to a Contract Changes Behavior

question 113

Multiple Choice

________ arises when one party to a contract changes behavior in response to that contract, passing the cost of that change in behavior to the other party.

• A) Adverse selection
• B) Moral hazard
• C) Logrolling
• D) Market signaling

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Definitions:

Tax Rate

The proportion of one's earnings or company profits that is required to be paid as tax.

Degree Of Financial Leverage (DFL)

A measure that evaluates the sensitivity of a company's earnings per share to fluctuations in its operating income, indicating financial risk.

Interest

The return on a debt investment.

Breakeven Volume

The number of units a company must sell to cover its fixed and variable costs, with no profit and no loss.