Restrictive covenants on loans are used to avoid a moral hazard correct

Restrictive covenants on loans are used to avoid a

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8.Restrictive covenants on loans are used to avoid a.moral hazard. [correct; restrictive covenants attempt to minimize excessive risk taking as a result of moral hazard.]b.adverse selection. [restrictive covenants attempt to control hidden actions.]c.free riding. [restrictive covenants exist to make sure that loans are used for their intended purposes, which is unrelated to free riding.]d.None of the above [one of the above answers is correct.] 9.Loan applications require a lot of information from applicants to avoid 10.Which of the following is true about moral hazard?
Week 7 Unassigned Problem Solutions Chapter 2020-1 Extended WarrantiesYour product fails about 2% of the time, on average. Some customers purchase the extended warranty youoffer in which you will replace the product if it fails. Would you want to price the extended warranty at 2% of the product price? Discuss both moral hazard and adverse selection issues. 20-2 Business LoanA colleague tells you that he can get a business loan from the bank, but the rates seem very high for what your colleague considers a low risk loan.a.Give an adverse selection explanation for this, and offer advice to your friend on how to solve the problem.b.Give a moral hazard explanation for this, and offer advice to your friend on how to solve the problem.

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