Which of the Following Statements About the Role of Information

question 22

Multiple Choice

Which of the following statements about the role of information in markets is true?

• A)Situations involving incomplete information are always problems of asymmetric information.
• B)Asymmetric information problems cannot be overcome without government intervention.
• C)In the presence of asymmetric information, one party always uses the other party's lack of information to their advantage.
• D)Asymmetric information becomes a problem when the parties involved have misaligned incentives.

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Definitions:

Coupon Bond

A debt security that pays the holder a fixed interest rate (the coupon) periodically until maturity, at which point the principal is repaid.

Basis Point

A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument, equal to 1/100th of 1%.

Bond Prices

The cost or value of a bond, which can fluctuate based on interest rates, credit quality of the issuer, and other factors.

Yields

Yields refer to the earnings generated and realized on an investment over a particular period, expressed as a percentage based on the investment’s cost, its current market value, or its face value.