rajatvmittal wrote:Alexis: In many cases, the unnecessary loans that you mention are decisions made by upper management on behalf of the company. CEO's will often choose the financing option that maximizes the debt to equity ratio and potential valuation of the company, but may not necessarily benefit the company. As a result, in order to succeed in reducing the price of credit default swaps, we should allow the company's board of directors to vote on which form of financing the company should allow and which forms it should not allow.

identify the assumption


CEOs are generally able to pick out, with consistent reliability, which loans and financing options would be best for the company.

Additional loans do not account for an insignificant part of why investors have bid up the probability of the company defaulting on existing loans.

Credit default swap prices in other industries such as oil & gas and retail, have been lowered by reducing the number of additional loans taken out by the company.

Company shareholders are not as likely as CEOs to take out additional loans.

Credit default swap prices have increased three times as fast in the past 3 years than they have over the past decade.

Dont know the answer. IMO A

ceilidh.erickson wrote:What is the source of this question? It sounds much more business-jargon-y than a real GMAT question. For the most part, the GMAT will not require any prior business knowledge (except the very very basics, such as profit = revenue - cost). A CR question will never bring up "credit default swaps" without first telling you what that is.

Be wary of studying from any source that offers un-GMAT-like questions.