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Adverse Selection Is a Problem Associated with Equity and Debt

Question 87

Multiple Choice

Adverse selection is a problem associated with equity and debt contracts arising from ________.


A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities
B) the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults
C) the borrower's lack of incentive to seek a loan for highly risky investments
D) the borrower's lack of good options for obtaining funds

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