1. An agency conflict can occur between stockholders (through managers) and creditors because the borrower may make decisions after the loan is made that affect the lender's welfare, e.g., take on additional debt or invest in risky projects. Creditors can protect themselves by:

A .Charging a higher than normal interest rate

B. Placing restrictive covenants in debt agreements

C. Requiring that the loan be secured.

D. All of the above

E. None of the above

2. Stock options in compensation plans usually are issued with a strike price equal to the current stock price. As long as the stock price increases, the option will become valuable, even if the stock price doesn’t increase as much as investors expect.  

True or False