Shareholders in a Bank May Encourage Excessive Risk Taking by the Bank

question 8

Multiple Choice

Shareholders in a bank may encourage excessive risk taking by the bank because

• A) shareholders are generally risk neutral
• B) shareholders are generally risk averse
• C) shareholders are generally risk loving
• D) limited liability means that shareholder losses are limited
• E) limited liability means that shareholder gains are limited

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Definitions:

Universal Instantiation

A logical rule of inference that allows one to deduce a particular instance from a universal statement, essentially moving from a general statement to a specific example.

Existential Generalization

A logical inference rule stating that if something is true for some member of a domain, then it is true that there exists something in that domain for which the proposition holds.

Quantifier Negation

The process of changing the quantifier in a statement, such as from "all" to "not all," to negate its original meaning.

Universal Generalization

A principle of deductive reasoning that allows one to conclude that something is true for all cases after confirming it is true in every observed case.