One Result of Asymmetric Information About People's Ability to Repay

question 336

Multiple Choice

One result of asymmetric information about people's ability to repay a loan is that

• A) loans will only be made to people who don't pay them back.
• B) a bank could make many loans to people who don't pay them back.
• C) lenders are better off than with perfect information.
• D) banks will not make loans.

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Definitions:

Fair Value

Fair value is the estimated price at which an asset or liability could be exchanged between knowledgeable, willing parties in an arm's length transaction.

Contingent Consideration

Future payment obligations in a business combination or other arrangements that depend on specific outcomes or achievements.

Goodwill

The intangible asset that arises when a company acquires another company for a price higher than the fair value of its net identifiable assets.

Share Issue Costs

The expenses associated with issuing new shares of stock, including legal, accounting, and underwriting fees.