A Problem with the Too-Big-To-Fail Policy Is That It ________

question 15

Multiple Choice

A problem with the too-big-to-fail policy is that it ________ the incentives for ________ by big banks.

• A)increases;moral hazard
• B)decreases;moral hazard
• C)decreases;adverse selection
• D)increases;adverse selection

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Definitions:

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return; used in financial analysis to assess the value of future income.

Capital Investment

The expenditure of funds by a firm to acquire physical assets, such as property, plant, or equipment, to improve its long-term income and profitability.

Net Present Value Method

A method of analysis of proposed capital investments that subtracts the amount to be invested from the present value of the cash flows expected from the investments.

Cash Payback Method

A capital budgeting technique that calculates the time required to recoup the cost of an investment based on its expected cash flows.