Adverse Selection Is a Problem Associated with Equity and Debt

question 79

Multiple Choice

Adverse selection is a problem associated with equity and debt contracts arising from

• A)the lender's relative lack of information about the borrower's potential returns and risks of his investment activities.
• B)the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults.
• C)the borrower's lack of incentive to seek a loan for highly risky investments.
• D)the borrower's lack of good options for obtaining funds.

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Definitions:

Electroencephalograph

An instrument used to record the electrical activity of the brain, often used in diagnosing conditions like epilepsy or monitoring the depth of anesthesia.

Neurofeedback

A type of biofeedback that uses real-time displays of brain activity to teach self-regulation of brain function.

Epilepsy

A neurological disorder marked by sudden recurrent episodes of sensory disturbance, loss of consciousness, or convulsions, associated with abnormal electrical activity in the brain.

Positive Reinforcer

An incentive that, when introduced following an action, enhances the probability of that action occurring again.