Which of the Following Actions Would Be Most Likely to Reduce

question 35

Multiple Choice

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?

• A) Compensating managers with stock options.
• B) Financing risky projects with additional debt.
• C) The threat of hostile takeovers.
• D) The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions.
• E) Abolishing the Security and Exchange Commission.

Explore the concept of the paradox of progress in technology and its psychological impacts.

Distinguish between useful and misleading self-help advice.

Understand the principles of time value of money and apply them to calculate the present value and future value of cash flows.

Evaluate investment projects using net present value (NPV) and internal rate of return (IRR) methods.

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Definitions:

Sub-prime Loan

A loan offered to individuals with poor credit histories or higher risk of default than prime borrowers, often at a higher interest rate.

Prime Rate

The interest rate that commercial banks charge their most credit-worthy customers, often used as a benchmark for other rates.

Credit Worthiness

An assessment of a borrower's ability to repay a loan or debt based on their financial history and current status.

FICO Score

A credit score measuring a borrower's likely ability to repay a loan. A person’s FICO score will range between 300 and 850. A score of 700 or more indicates that the borrower’s credit standing is good. FICO is an acronym for the Fair Isaac Corporation, the creators of the FICO score.