The Risk Aversion Problem in Shareholder-Manager Agency Relationships Arises Because

question 12

Multiple Choice

The risk aversion problem in shareholder-manager agency relationships arises because:

• A) managers are more risk-averse than shareholders.
• B) shareholders prefer less risk than do managers.
• C) managers have less capital invested in the entity than shareholders.
• D) shareholders are not able to diversify their risk.

---

Definitions:

Interest Rates

The cost of borrowing money, typically expressed as a percentage of the amount loaned, paid to the lender at regular intervals for the use of their money.

Bond Prices

The market value of a bond, which can fluctuate based on interest rates, the bond’s credit quality, and other factors.

Opportunity Cost

Cost associated with opportunities forgone when a firm’s resources are not put to their best alternative use.

Projected Net Present Value

An estimation of the present value of an investment's future net cash flows minus the initial investment cost.