Conflicts of interest between stockholders and bondholders are known as
A)trustee costs.
B)financial distress costs.
C)dealer costs.
D)agency costs.
E)underwriting costs.

Question

Quizplus · Accepted Answer

Conflicts between stockholders and bondholders are a type of agency problem, where one party (the stockholders) has the potential to act in their own self-interest at the expense of the other (the bondholders). The agency costs arise when actions taken by the stockholders reduce the value of the bondholders' investment, such as taking on excessive risk or paying out dividends instead of paying off debt. Trustee costs, financial distress costs, dealer costs, and underwriting costs are all related to different aspects of the investment process, but they do not specifically address the conflict of interest between stockholders and bondholders.

Conflicts of Interest Between Stockholders and Bondholders Are Known as