Which Is an Example of Asymmetric Information

question 45

Multiple Choice

Which is an example of asymmetric information?

• A) an employer not knowing which job candidate will do the best job
• B) a buyer using a compiled report on the quality of a used car
• C) a shopper using Internet reviews to help her decide which washing machine to purchase
• D) a doctor prescribing a medication for a patient

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Definitions:

Risk Premium

The extra return expected by investors for holding a risky asset compared to a risk-free asset, compensating for the additional risk.

Total Return

The complete return on an investment over a specified period, including both capital gains and income received.

Dividend

A portion of a company's earnings that is paid to shareholders or owners as a distribution of profits.

Capital Gains Rate

The tax rate applied to the profit made from selling an asset at a higher price than its purchase price.