What Is the Principal-Agent Problem

question 126

Multiple Choice

What is the principal-agent problem?

• A)It is a problem caused by a person (principal)who hires an agent to act on his behalf but is unwilling to delegate authority to the agent to carry out the task in the best possible way.
• B)It is a problem caused by agents pursuing their own interests rather than the interests of the principals who hired them.
• C)It is a problem of the power system of boss and subordinate where the boss (principal)exerts influence over his subordinates (agents)using punishment or threat.
• D)It is a problem that exists when a person (principal)has more information about the task than the agent he hires to perform the task.

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Definitions:

19th Payment

Refers to the nineteenth installment in a series of scheduled payments for a loan or mortgage.

Compounded Semi-Annually

The calculation of interest where the frequency of compounding is twice a year, leading to interest on interest during these periods.

Reduction of the Principal

The process of decreasing the initial amount of money borrowed or invested over time.

10th Payment

The tenth installment of a series of payments in a loan or mortgage.