1. 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
2. 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.
3. Governments regulate financial systems because _____
they need to ensure stability and protect consumers.
the financial system seldom loans money without government support.
both of the above.
none of the above.