Tirole’s model of moral hazard associated with external financing (whether debt or equity) has nothing to do with risk-taking. Characterize the basis of moral hazard in his model. Then explain the type of rationing that the model predicts.
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Tirole’s model of moral hazard associated with external financing (whether debt or equity) has nothing to do with risk-taking. Characterize the basis of moral hazard in his model. Then explain the type of rationing that the model predicts.
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- Discuss how the free-rider problem aggravates adverse selection and moral hazard problems in financial markets.Hi, can you find pro and cons on this statement? And please explain in detail. A sound risk mitigation plan improves the DCF, as it lowers the risk premium in the discount factor.If there is uncertainty about monetary outcome and you are concerned about return and risk, then all you need to know are the mean and standard deviation of the possible outcomes. The emtire distribution provides no extra useful information. Do you agree or disagree? Justofy your answer and provide an example to back up your argument.
- What are the real risks of an adverse financial outcome, especially in the short run?What kind of financial risk caused the SVB crisis, what could be done to deal with it and what could they have done to avoid it?Capital Asset Pricing Model is based on certain assumptions, which have been criticized after empirical testing of the model. Discuss the critique of the model in the context of those assumption. Also discuss the empirical findings of the CAPM. What sort of models have been presented to overcome the drawbacks of CAPM?
- A. Briefly explain the problem of moral hazard in: (i) Equity financing (ii) Debt financingB. What is the adverse selection problem in financial markets and how can it be solved?Explain how pure risk has an adverse effect on the economy?Which of the following statements is TRUE about risk-free investment? a. Return in risk-free investment is high, but the investment manager charges a fee for the guarantee. b. It always provides inconsistent return as consistent return requires higher risk c. It provides lower returns as higher return requires higher risk.
- Explain Minsky’s Financial Instability Hypothesis and mention the assumptions of the model.What sorts of factors might limit the ability of rational investors to take advantage of any “pricing errors” that result from the actions of “behavioral investors”?In general, what is true of people's risk aversion for changes in income that are marginal (i.e., very small changes in income)? (a) They are less risk averse. (b) Their risk aversion does not change. (c) It depends on the shape of the individual utility function. (d) They are more risk averse.