Although Debt Contracts Require Less Monitoring Than Equity Contracts,debt Contracts

question 90

Multiple Choice

Although debt contracts require less monitoring than equity contracts,debt contracts are still subject to ________ since borrowers have an incentive to take on more risk than the lender would like.

• A)moral hazard
• B)agency theory
• C)diversification
• D)the "lemons" problem

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Definitions:

Reload Features

Options or clauses in certain agreements that allow for the automatic renewal or extension under specific conditions.

Initial Options

The first set of choices or decisions available in a particular situation or as part of a negotiated agreement.

Fair Value

The gain from liquidating an asset or the outgo for transferring a liability in a well-planned trade with market stakeholders on the designated measurement day.

Share Options

A privilege, sold or granted, that gives the holder the right, but not the obligation, to buy or sell shares at a specified price within a predetermined time.