Adverse Selection Is a Problem Associated with Equity and Debt

question 79

Multiple Choice

Adverse selection is a problem associated with equity and debt contracts arising from

• A)the lender's relative lack of information about the borrower's potential returns and risks of his investment activities.
• B)the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults.
• C)the borrower's lack of incentive to seek a loan for highly risky investments.
• D)the borrower's lack of good options for obtaining funds.

---

Definitions:

Remaking Impressionism

The process or trend of revisiting and reinterpretation of the Impressionist movement in art, which originally emerged in the late 19th century focusing on capturing light and natural forms.

Permanent

Lasting or intended to last or remain unchanged indefinitely.

Transitory

Pertaining to or lasting for only a short period of time; temporary and fleeting in nature.

Unmodulated Color

A color that is consistent in hue and intensity across a surface, without gradation in tone or shade.