Which Statement Best Explains "Adverse Selection

question 12

Multiple Choice

Which statement best explains "adverse selection"?

• A)The term refers to a situation where one party has an information advantage over another.
• B)The term refers to the need external parties have for financial information.
• C)The term refers to the fact that some people have more information than others.
• D)The term refers to a situation where one party cannot observe the actions of another party.

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Definitions:

Expected Growth Rate

The anticipated rate at which a company, asset, or economy is expected to grow in the future.

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment’s cost.

Dividend

A payment made by a corporation to its shareholders, usually in the form of cash or stock, from its profits or reserves.

Liquidation Value

Net amount that could be realized by selling the assets of a firm after paying the debt.