Which One of the Following Statements Is TRUE

question 19

Multiple Choice

Which one of the following statements is TRUE?

• A) When lenders protect themselves from the risk of asset switching, the borrowing firms will be limited in the projects they can profitably undertake.
• B) An agency relationship is when a principal works for an agent.
• C) In an agency relationship, the agent delegates authority to the principal.
• D) Firms borrowing money have greater flexibility to use that money when there are debt covenants.
• E) When lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's WACC can decrease.

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Definitions:

Interest Rate

The cost of borrowing money or the reward for saving, usually expressed as a percentage of the principal amount per annum.

Years From Now

This term projects a future timeline or point in time from the present moment.

Interest Rate

The amount charged on top of the principal by lenders to borrowers, usually expressed as an annual percentage of the loan.

Interest Rate

The interest rate is the percentage of the principal charged by a lender to a borrower for the use of assets, typically expressed as an annual percentage.