Which of the Following Actions Would Be Most Likely to Reduce

question 35

Multiple Choice

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

• A) Compensating managers with stock options.
• B) Financing risky projects with additional debt.
• C) The threat of hostile takeovers.
• D) The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions.
• E) Abolishing the Security and Exchange Commission.

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Definitions:

Absolute Purchasing Power Parity

A theory stating that identical goods and services in different countries should cost the same when priced in a common currency.

Standardized Good

a product that is produced to a set standard, making it interchangeable with similar products.

Economic Values

The worth of goods or services determined by the market, where price represents the quantity of resources people are willing to exchange for it.

Absolute Purchasing Power Parity

The economic theory that the price of a good should be the same in different countries when expressed in a common currency, accounting for exchange rates.