In the Two-Period Model,the Nature of the Asymmetric Information Is

question 18

Multiple Choice

In the two-period model,the nature of the asymmetric information is that

• A) only the bank knows who the bad borrowers are.
• B) only borrowers know whether they are bad or not.
• C) only borrowers know the value of their collateral.
• D) only banks can value the collateral.
• E) only consumers know their income when it is received.

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Definitions:

Net Income

The total profit of a company after all expenses and taxes have been subtracted from total revenue.

Equity Multiplier

A financial ratio that measures the portion of a company's assets that are financed by shareholder's equity, providing insights into leverage.

Profit Margin

A financial performance ratio, calculated by dividing net income by sales revenue, indicating how much profit a company keeps from its sales.

ROE

Return on Equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how effectively a company uses investments to generate earnings growth.