Which of the Following Would Be an Example of a Principal

question 29

Multiple Choice

Which of the following would be an example of a principal trying to deal with a moral hazard problem?

• A) The parents of an infant secretly place video cameras in their house before the baby-sitter arrives.
• B) An insurance company checks police records to determine if its policyholders have received traffic fines.
• C) An employer examines his workers' output on a daily basis.
• D) All of the above are correct.

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Definitions:

Stock Issue

The process by which a company distributes new shares to investors, either through public offering or private placement.

Legal Fees

Costs charged by lawyers for their services.

Subscription Price

The fee charged to customers for accessing a product or service for a specified period, typically recurring monthly or annually.

Rights Offering

A process by which a company offers its existing shareholders the opportunity to buy additional shares at a discounted price before the new shares are offered to the public.