When a Firm Issues Bonds Instead of Stocks It Is

question 70

Multiple Choice

When a firm issues bonds instead of stocks it is lessening the problem of because bonds .

• A)adverse selection; pay a given amount as long as the firm does not default
• B)moral hazard; pay dividends depending on the profits the firm makes
• C)inflation; are indexed to inflation
• D)uncertainty; have less moral hazard

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Definitions:

Symbols

Objects, figures, or characters used to represent abstract concepts, ideas, or phenomena.

Customs

Traditional practices, rules, and ways of behavior that are typical of a particular community or society.

Just World Belief

The cognitive bias to believe that the world is fundamentally fair, leading to the assumption that actions always result in appropriate consequences.

Uncertainty-Identity Theory

A social psychological theory that suggests people join groups to reduce feelings of uncertainty about themselves and the world.