What Is the Principal-Agent Problem

question 126

Multiple Choice

What is the principal-agent problem?

• A)It is a problem caused by a person (principal)who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way.
• B)It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them.
• C)It is a problem of the power system of boss and subordinate where the boss (principal)exerts influence over his subordinates (agents)using punishment or threat.
• D)It is a problem that exists when a person (principal)has more information about the task than the agent he hires to perform the task.

Comprehend the financial considerations and calculations involved in refunding bond issues.

Understand and identify different types of equity transactions, including equity carve-outs and bought deals.

Grasp the concept of flotation costs and their impact on a company’s financial decisions.

Understand the sources of equity capital for start-up companies.

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Definitions:

Militia Training

The process of training non-professional soldiers, usually civilians, in military techniques, often for self-defense or local protection purposes.

Continental Army

The army raised by the Second Continental Congress in 1775, under the command of General George Washington, to fight against British forces during the American Revolutionary War.

Natural Rights

The rights that individuals are said to be inherently entitled to, such as life, liberty, and property, as per Enlightenment thought.

Life, Liberty

Fundamental principles associated with the right to live freely and to pursue happiness without undue restriction from government or other powers.