KiaSchmithot
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Moral hazard occurs when:

Aindividuals do not do what is in their own best interest.
Ban individual knows more about the way things are than other people do
Can individual has an incentive to violate his or her morals.
Dan individual knows more about his or her actions than other people do.

Stephanie offers to pay Josh $1,000 a year from now if he will lend her money today. Assume that there is no inflation over this period. If Josh wants to earn 10% interest, the maximum amount he will lend Mary is:

A$909.09
B$990.09.
C$90
D$826.45

Verified Answer :

1) Moral hazard occurs when the individual does not tell the others all the risks associated with their actions, so the correct answer is:
D. an individual knows more about his or her actions than other people do.

for the second one:

the money lent will be x

so we have :

x+10%x=1000
(the money lent and the interest are 1000 together)

so: 110%x=1000

\(\frac{110}{100} x=1000\)

\(\frac{11}{10} x=1000\)
11x=1000
x=1000\11
x=909.09 - so they correct answer is A!

x=


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