In the Market for Karate Lessons, the Instructors Know More

question 74

Multiple Choice

In the market for karate lessons, the instructors know more about the quality of their instruction than their students do. This situation may set up a:

• A) lemons problem.
• B) sensei equilibrium.
• C) subgame outcome.
• D) dojo fruition.

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Definitions:

Convertible Feature

A characteristic of some bonds or preferred stocks that allows them to be converted into a specified number of common shares, usually at the discretion of the holder.

Floating-rate Bond

A bond whose interest payments vary with market interest rates, as opposed to a fixed-rate bond.

Implicit Interest

The interest amount represented in the difference between the present value and the future value of a payment or investment.

Nominal Face Value

The stated value of a financial instrument (e.g., bond) at issuance, unrelated to market value.