When Collateral Is Used as a Screening Device in Conjunction

Multiple Choice

When collateral is used as a screening device in conjunction with interest rate, a high risk borrower chooses a contract with , while a low risk borrower chooses the one with .

A) high collateral-high interest rate, low collateral-low interest rate
B) low collateral-low interest rate, high collateral-high interest rate
C) high collateral-low interest rate, low collateral-high interest rate
D) low collateral-high interest rate, low collateral-low interest rate
E) low collateral-high interest rate, high collateral-low interest rate