Asked by LaQuesha Jewell on May 21, 2024
Verified
Lenders protect themselves from conflicts of interest with shareholders through:
A) cooperative agreements signed by shareholders and lenders.
B) limiting the amount of funds bondholders lend.
C) loan agreements that prohibit companies from undertaking excessive risk.
D) offering lenders a share of profits.
Conflicts of Interest
Situations in which a person's private interests might interfere with their professional duties or responsibilities.
Loan Agreements
Contracts between a borrower and a lender outlining the terms and conditions of a loan, including repayment schedule, interest rates, and collateral.
Shareholders
Individuals or entities that own one or more shares of stock in a public or private corporation, making them partial owners of the company.
- Identify the distinctions between financial assets and physical assets, comprehend the essence of bonds, and the notion of debt connections.
Verified Answer
DC
DANNY CUELLARMay 24, 2024
Final Answer :
C
Explanation :
Loan agreements that prohibit companies from undertaking excessive risk protect lenders from conflicts of interest with shareholders. This ensures that the company does not undertake risky ventures that would increase the likelihood of default on loans, thereby protecting the lenders' investments. Cooperative agreements or offering lenders a share of profits may not necessarily protect lenders from conflicts of interest, and restricting the amount of funds that bondholders lend may not be sufficient to address conflicts of interest.
Learning Objectives
- Identify the distinctions between financial assets and physical assets, comprehend the essence of bonds, and the notion of debt connections.