Identify the Incorrect Statement Regarding Debt Loans

question 43

Multiple Choice

Identify the incorrect statement regarding debt loans.

• A)They are made when a corporation sells stock to investors and gives its holders a claim to the firm's profit stream.
• B)Management has no discretion as to the amount it will pay investors.
• C)They include cash loans from banks and funds raised from the sale of corporate bonds to investors.
• D)They require the corporation to repay a predetermined portion of the loan amount at regular intervals regardless of how much profit it is making.

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Definitions:

Asymmetric Information

A situation in which one party in a transaction has more or superior information compared to another, often leading to an imbalance in decision-making.

Inefficient Outcomes

Situations in which resources are not allocated optimally, leading to wasted resources or unmet potential.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in market balance.

Moral Hazard

A situation in which one party engages in risky behavior or lacks incentive to guard against risk because they are protected by an insurance or other agreement.