When Asset Prices Fall Following a Boom

question 10

Multiple Choice

When asset prices fall following a boom,

• A) moral hazard may increase in companies that have lost net worth in the bust.
• B) financial institutions may see the assets on their balance sheets deteriorate, leading to deleveraging.
• C) both A and B are correct.
• D) none of the above are correct.

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Definitions:

Dual Class Stock

A corporate structure where two or more classes of shares are issued, with different voting rights and dividend payments, typically used to retain control among a select group of shareholders.

Dividend Payment Claims

Rights of shareholders to receive a portion of a company's earnings distributed as dividends.

Dividend Growth Model

A model for valuing a stock by assuming constant, usually non-zero growth in dividends per share.