Moral Hazard Is a Problem Associated with Debt and Equity

question 109

Multiple Choice

Moral hazard is a problem associated with debt and equity contracts arising from

• A) the borrower's incentive to undertake highly risky investments.
• B) the owners' inability to ensure that managers will act in the owners' interest.
• C) the difficulty lenders have in sorting out good credit risks from bad credit risks.
• D) all of the above.
• E) only A and B of the above.

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Definitions:

Wrong Shipments

Occurrences where goods are incorrectly sent to a different destination or recipient than intended.

Logical Case

A reasoned argument or factual reasoning that supports a specific conclusion or idea.

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Writer's Anger

The emotion of frustration or displeasure expressed by an author in their writing.