Imperfect Information Among the Potential Bidders of a Cable TV

question 44

Multiple Choice

Imperfect information among the potential bidders of a cable TV franchise results in a final bid that is more than the market value of a franchise. This situation is an example of:​

• A)moral hazard.
• B)an authority relation.
• C)the winner's curse.
• D)the principal-agent problem.
• E)adverse selection.

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Definitions:

SML Approach

Security Market Line approach; a graphical representation of the expected return of investments as a function of their systematic, non-diversifiable risk.

Cost of Capital

The rate of return that a company must earn on its investments to maintain its market value and satisfy its shareholders or debtholders.

Future Inflation

Anticipated increase in the price level of goods and services in the future, affecting purchasing power.

Market Risk Premium

The additional return an investor expects from holding a risky market portfolio instead of risk-free assets.