Which of the Following Is an Example of Asymmetric Information

question 436

Multiple Choice

Which of the following is an example of asymmetric information?

• A) When someone is applying for a job, the employer checks references to determine the previous work habits of the applicant.
• B) When an employee purchases group life insurance without taking a physical exam, she knows more about her health than does the insurance company.
• C) When someone is considering buying a used car from a dealership, the potential buyer requests documentation of the repair history of the car.
• D) All of the above are correct.

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Definitions:

Equivalent Payment

A payment amount that equates the present value of two or more different payments.

Annum

A term denoting a year or a yearly period, often used in financial contexts to refer to annual amounts or periods.

Simple Interest

Interest calculated only on the principal amount, not on the interest that has been added over time.

Repay

The act of paying back money that was borrowed from a person or institution.