4. Which of the following is false about the risk-shifting problem? Risk-shifting leads to a transfer of value from debt-holders to equity holders Risk-shifting leads prospective lenders to pay less for debt and require higher interest payments Risk-shifting arises when shareholders choose negative NPV projects with higher risk Risk-shifting is an example of an agency cost of debt Risk-shifting is greater in firms with low leverage
4. Which of the following is false about the risk-shifting problem? Risk-shifting leads to a transfer of value from debt-holders to equity holders Risk-shifting leads prospective lenders to pay less for debt and require higher interest payments Risk-shifting arises when shareholders choose negative NPV projects with higher risk Risk-shifting is an example of an agency cost of debt Risk-shifting is greater in firms with low leverage
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![4. Which of the following is false about the risk-shifting problem?
Risk-shifting leads to a transfer of value from debt-holders to equity
holders
Risk-shifting leads prospective lenders to pay less for debt and require higher interest
payments
Risk-shifting arises when shareholders choose negative NPV projects with higher
risk
Risk-shifting is an example of an agency cost of
debt
Risk-shifting is greater in firms with low
leverage](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb8a9802b-ded9-4a7b-93c8-71218002814a%2Faa108304-a03d-4bc9-b5ff-f430b461a2c5%2Fv1y6eqb_processed.png&w=3840&q=75)
Transcribed Image Text:4. Which of the following is false about the risk-shifting problem?
Risk-shifting leads to a transfer of value from debt-holders to equity
holders
Risk-shifting leads prospective lenders to pay less for debt and require higher interest
payments
Risk-shifting arises when shareholders choose negative NPV projects with higher
risk
Risk-shifting is an example of an agency cost of
debt
Risk-shifting is greater in firms with low
leverage
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