Question 4

Select the true statement about the concept of agency cost.

• An agency cost is one that is incurred when bondholders raise the interest rate on a bond.
• An agency cost is one that is incurred when an agent's actions deviate from the principal's interests.
• An agency cost is a cost to an organization that is inversely related to the organization's assumption of risk.
• An agency cost is a variable cost to an organization that has yet to be approved by the principal.