When an Agent Tries to Exploit an Information Advantage in a Dishonest

question 88

Multiple Choice

When an agent tries to exploit an information advantage in a dishonest way, it is called:

• A) adverse selection.
• B) moral hazard.
• C) signaling.
• D) information asymmetry.

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Definitions:

Initial Investment

Refers to the initial capital outlay or amount of money invested to start a project or investment.

IRR

Internal Rate of Return; a financial metric used to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Financial Break-Even

The point at which revenues equal expenses and neither profit nor loss is realized.

Required Rate

Also known as the Required Rate of Return, it is the minimum annual percentage return an investor expects to achieve from an investment.