Which of the Following Is NOT an Example of Moral

question 244

Multiple Choice

Which of the following is NOT an example of moral hazard?

• A) People take poor care of their health because they have health insurance.
• B) People drive recklessly because they have medical insurance.
• C) People don't lock their doors because they have theft insurance.
• D) All of the above are examples of moral hazard.

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Definitions:

Preferred Stock

A class of ownership in a corporation with a higher claim on assets and earnings than common stock, usually with dividends that are paid out before those to common stockholders.

Common Stock

A type of security that signifies ownership in a corporation, entitling the holder to a share of the company's assets and profits.

Pre-Tax Cost of Debt

The interest rate a company pays on its borrowings before taking into account any tax deductions.

Zero-Coupon Bonds

Zero-coupon bonds are debt securities that are issued at a discount to their face value and don’t pay interest before maturity; instead, investors receive the face value at maturity.