A Debt Contract Is Incentive Compatible

question 87

Multiple Choice

A debt contract is incentive compatible

• A)if the borrower has the incentive to behave in the way that the lender expects and desires,since doing otherwise jeopardizes the borrower's net worth in the business.
• B)if the borrower's net worth is sufficiently low so that the lender's risk of moral hazard is significantly reduced.
• C)if the debt contract is treated like an equity.
• D)if the lender has the incentive to behave in the way that the borrower expects and desires.

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Definitions:

Dysfunctional Home

A family environment marked by conflict, neglect, or abuse, adversely affecting its members.

Eating Disorders

Mental disorders characterized by abnormal or disturbed eating habits, such as anorexia nervosa or bulimia nervosa, which significantly impact an individual's health and well-being.

Anorexia Nervosa

An eating disorder characterized by an obsessive fear of gaining weight, leading to a refusal to maintain a healthy body weight and an extremely distorted body image.

Bulimia

An eating disorder characterized by episodes of binge eating followed by compensatory behaviors such as vomiting, fasting, or excessive exercise.