When People Behave in Ways That Involve Increased Risk Because

question 21

Multiple Choice

When people behave in ways that involve increased risk because they have insurance,this is known as

• A) adverse selection.
• B) moral hazard.
• C) asymmetric information.
• D) a HMO.

---

Definitions:

Warrant

A financial instrument that gives the holder the right, but not the obligation, to buy a company's stock at a specific price before a certain date.

Convertible Bond

A financial instrument that can be transformed into a certain number of the issuer's shares at various points in its existence, most often per the discretion of the individual possessing the bond.

Putable Bond

A type of bond that gives the holder the option to require the issuer to repurchase the security before its maturity date at a predetermined price.

American Options

Financial derivatives that can be exercised by the holder at any time before they expire.