QUESTION 28

If both the agent and principal are risk-neutral, and the agent believes that he can walk away from his job without repercussions, although without compensation when the principal loses money. The agent receives a share of earnings from the investments. Then which of the following statement is true about the investments made by the agent?

1. The principal will prefer the same investments as the agent.
2. The agent will maximize the principal's expected profits.
3. The agent will likely engage in excessive risky investments.
4. The agent will make the investment that is in the shareholders' interest.

QUESTION 30

Fishermen on the East Coast are using lobster traps out of which most of the lobsters that enter can escape. Why?

1. They can't come up with better traps.
2. They catch more lobsters this way.
3. They are not educated enough to maximize profit.
4. It will make over-fishing less likely.

QUESTION 43

Four banks are offering the same interest rate of 4%. Where do you invest?

1. Bank A compounds interest on a yearly basis.
2. Bank B compounds interest on a monthly basis.
3. Bank C compounds interest on a daily basis.
4. I am indifferent between banks.