An Asymmetric Information Problem Arises When

Multiple Choice

An asymmetric information problem arises when

A) the representative firm is unable to borrow.
B) there are more bad firms than good firms that wish to borrow.
C) interest rates exceed r.
D) the lender is not able to distinguish between a good borrower and a bad borrower.
E) the managers of bad firms consumer the borrowed funds as executive compensation.