Question 1
Solutions to the moral hazard problem include
a. high net worth.
b. monitoring and enforcement of restrictive covenants.
c. greater reliance on equity contracts and less on debt contracts.
d. all of the above.
e. only A and B of the above.
Question 2
Debt contracts
a. are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic intervals.
b. have an advantage over equity contracts in that they have a lower cost of...