Tom Borrows $100,000 from His Local Bank to Purchase Inventory

question 92

Multiple Choice

Tom borrows $100,000 from his local bank to purchase inventory for his store for the upcoming holiday season. Tom's neighbor tells him about a get-rich-quick scheme that can take this $100,000 and triple it in a month. Tom decides to buy into this scheme figuring he can repay the bank and still have plenty left for inventory. This is an example of:

• A) adverse selection.
• B) sound risk analysis on Tom's part.
• C) diversification.
• D) moral hazard.

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Definitions:

Diversity

The inclusion of individuals with a wide range of characteristics, such as cultural backgrounds, languages, races, ages, genders, etc., within a group or organization.

Social Category Diversity

The presence of diverse social identities within a group, such as differences in race, gender, ethnicity, which can impact group dynamics and outcomes.

Attentional Focus Model

A theoretical framework describing how focusing attention on different aspects of a task can influence performance and learning.

Time Pressure

Time Pressure refers to the stress or urgency to complete tasks or make decisions within a limited timeframe.