Question 4. Which of the following statements is NOT correct?

Question 4 options:

A) The "precommitment problem" describes the situation where the shareholders and/or managers do not have the incentive to precommit to a hedging strategy, because the risk the firm faces is not insurable by standard insurance contracts.

B) Without an ability to precommit to hedge, the realized gains to a firm in risk management will be lower.

C) As long as the effective tax function is linear (i.e., the firm faces a constant effective marginal tax rate), hedging will not affect the firm's expected tax liability.

D) Tax considerations suggest that the