Answer: B. stockholders expropriate value from bondholders by selecting high-risk projects.
Explanation:
Bankruptcy simply means when an individual or business cannot pay back the funds that is owed to the creditor. When bankruptcy is declared by a particular business, the assets for the business are used in paying back the debt.
One of the indirect costs of bankruptcy is the effect that a potential bankruptcy has on the firm's decisions. The general result is that stockholders expropriate value from bondholders by selecting high-risk projects.
Therefore, option B is the answer.
Answer:
The correct answer is option D.
Explanation:
A market failure refers to the situaion where the market forces fail to efficiently allocate resources. It happens because of a number of reasons such as externalities, monopoly, asymmetrical information, tragedy of commons etc.
In case of market failure, the government has to intervene to efficiently allocate resources. The failure of price mechanism to produce goods efficiemtly results in government to intervene.
In the primary market investors buy securities directly from the company issuing them while the secondary market, investors trade securities among themselves, and the company with the security being traded does not participate in the transaction. Therefore, an example of a primary market transaction would be the sale of 1000 shares of newly issued stock by Alt Company to Miquel.
