1. If you suspect that a company will go bankrupt next year, which would you rather hold, bonds issued by the company or equities issued by the company? Why? 2. How can the adverse selection problem...

1. If you suspect that a company will go bankrupt next year, which would you rather hold, bonds issued by the company or equities issued by the company? Why?

2. How can the adverse selection problem explain why you are more likely to make a loan to a family member than to a stranger?

3. Think of one example in which you have had to deal with the adverse selection problem.

4. Why do loan sharks worry less about moral hazard in connection with their borrowers than some other lenders do?

5. If you are an employer, what kinds of moral hazard problems might you worry about with your employees?