The Main Reason Why Banks Are the Leading Source of External

question 12

Multiple Choice

The main reason why banks are the leading source of external finance for businesses is

• A)the interest rates on bank loans are usually lower than interest rates on corporate bonds.
• B)banks have an information-cost advantage in reducing adverse selection problems.
• C)interest paid on bank loans is deductible against the corporate income tax, whereas interest paid on corporate bonds is not.
• D)government regulators encourage small businesses to obtain funding from banks.

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Definitions:

Utility

In economics, a measure of satisfaction or happiness that consumers derive from consuming goods and services.

Von Neumann-Morgenstern

A theory designed to understand the utility of outcomes in strategic games, emphasizing the mathematical expected utility.

Expected Utility

A theory in economics that calculates the utility of an outcome based on its probability and the utility of the outcomes.

Income

The monetary payment received for goods or services, or profit from investments, typically calculated on a regular basis like annually or monthly.