Costs associated with the conflicts of interest between the bondholders and the shareholders of a corporation are called
A)legal costs.
B)bankruptcy costs.
C)administrative costs.
D)agency costs.

Question

Quizplus · Accepted Answer

The conflicts of interest between bondholders and shareholders are considered agency problems, as the shareholders (who control the company) have a duty to act in the best interests of the bondholders (who have loaned money to the company). The costs associated with these conflicts are known as agency costs, which can include legal fees, consulting fees, and other expenses related to resolving the conflicts. Bankruptcy costs and administrative costs are not necessarily associated with conflicts of interest specifically, but may be incurred as a result of other financial issues.

Costs Associated with the Conflicts of Interest Between the Bondholders