QUESTION 23 The principal-agent problem arises because _____ principals find it

ID: 2774549 • Letter: Q

Question

QUESTION 23

The principal-agent problem arises because _____

principals find it difficult and costly to monitor agents' activities

agents' incentives are not always compatible with those of the principals

principals have incentives to free-ride off the monitoring expenditures of other principals

all of the above

1 points

QUESTION 24

Buying bonds in a firm that has a high net worth is beneficial to the investor because _____

it eliminates the adverse selection problem.

the firm is less likely to take on additional debt.

if the firm defaults, the investors can take title to the net worth, sell it off, and use the proceeds to recoup some of the loan losses.

net worth has no real meaning on balance sheets.

1 points

QUESTION 25

Governments regulate financial systems because _____

they need to ensure stability and protect consumers.

the financial system seldom loans money without governemnt support.

both of the above.

none of the above.

principals find it difficult and costly to monitor agents' activities

agents' incentives are not always compatible with those of the principals

principals have incentives to free-ride off the monitoring expenditures of other principals

all of the above

23. a . prinicipals find it difficult and costly to monitor agents activities.

24. c. if the firm defaults , the investors can take title to the networth, sell it off, and use the proceeds to recoup some of the loan losses.

25. they need to ensure stability and protect consumers.

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