Which of these describes an example of asymmetric information in the bond market?

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Question restatement: Which of these describes an example of asymmetric information in the bond market?

Option 1: 'Bond issuers and bond buyers have different experiences in the bond market.' While there can be differences in experience, this is a broad statement and does not capture the core notion of asymmetric information, which is about unequal information rather than unequal experience.

Option 2: 'Bond issuers have longer-term goals than bond buyers.' This describes a potential difference in objectives, but asymmetric information refers to knowledge disparities, not necessarily to the alignment of goals or time horizons.

Option 3: 'Bond issuers have better insight about their future profitability than bond buyers.' This statement directly embodies asymmetric information: issuers possess private information about their prospects that buyers do not have access to, leading to information asymmetry in pricing and risk assessment.

Option 4: 'Bond issuers are more conservative about the future than bond buyers.' This discusses risk attitudes or outlooks, which may differ, but it does not inherently describe unequal information about outcomes. Asymmetric information centers on information that one party knows more than another, not merely differences in conservatism or expectations.

Summary across options: The essence of asymmetric information in the bond market is the unequal access to private information about the issuer’s future profitability or prospects. Option 3 is the explicit embodiment of that concept, while the other options describe related but distinct ideas (experience, goals, risk outlook) that do not define information asymmetry.

BUSFIN 4265 SP2025 (5285) Quiz #2 Brandl 2e Chapters 7-10

Which of these describes an example of asymmetric information in the bond market?

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