Chapter 1, Problem 4BD

What are the major flaws with NPV? What are the major flaws with IRR? If you are going to a bank and trying to get a loan, which is the best method to use (NPV, IRR, Payback period)?

Thoroughly discuss why the asymmetric information is an obstacle to the direct finance? Give examples of moral hazard and adverse selection problems and possible solutions.

How is your borrowing power affected when you are considered a "high risk"? There is a good chance that you will receive better loan terms and low interest rates. You might not qualify for a loan to buy a home, car, etc. You will pay lower interest rates. None of the above.

What probable emotional reactions will have to an adverse financial outcome?

A borrower who takes out a loan usually has better information about the potential returns and risks of the investment projects he plans to undertake than the lender does. This inequality of information is called O a. adverse selection. b. moral hazard. C. asymmetric information. O d. noncollateralized risk.

Know where to get help with your taxes and how software can make tax return preparation easier.

Common examples of financial abuse include:?

How is your borrowing power affected when you are considered a "low risk"? There is a good chance that you will receive better loan terms and low interest rates. You might not qualify for a loan to buy a home, car, etc. You will have to pay higher interest rates. None of the above.

Indicate whether the statement is true or false, and justify your answer.In the model of insurance and uncertainty discussed in the chapter, an individual exhibits declining marginal utility of income if and only if she is risk-averse.