Which of the Following Is True of How Agents May

question 7

Multiple Choice

Which of the following is true of how agents may differ from principals?

• A)Agents can diversify the risks more easily.
• B)Agents are more likely to pursue projects with high potential payoffs.
• C)Agents can diversify investments better.
• D)Agents are more averse to risk.
• E)Agents are likely to prefer more emphasis on uncertain incentives than base pay.

---

Definitions:

Default Risk

The possibility that a borrower will fail to meet the obligations of a loan agreement.

Interest Rate Risk Premiums

Additional returns demanded by investors to compensate for the risk of fluctuating interest rates.

D Credit Rating

A rating indicating that an entity is in default, having failed to fulfill its credit obligations, the lowest possible rating in assessments of credit risk.

Credit Rating

A formal assessment of an entity's ability to repay its debts, often in the form of a letter grade.