A borrower's willingness to sign a personal guarantee is
A) one form of the moral hazard problem.
B) one form of the adverse selection problem.
C) a signal of a high-quality borrower.
D) a signal of a low-quality borrower.

Question

Quizplus · Accepted Answer

A borrower's willingness to sign a personal guarantee is a signal of a high-quality borrower. Personal guarantees show lenders that borrowers are confident in their ability to repay the loan and are willing to put their personal assets at risk if necessary, indicating that they are less likely to default on the loan. Therefore, they are considered less risky and higher quality borrowers.

A Borrower's Willingness to Sign a Personal Guarantee Is