Because creditors can foresee, to at least some extent, the costs of bankruptcy, they charge a higher rate of interest to compensate for the present value of bankruptcy costs.

Name: Because creditors can foresee, to at least some extent, the costs of bankruptcy, they charge a higher rate of interest to compensate for the present value of bankruptcy costs.
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Question

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Creditors take into consideration the costs of bankruptcy and adjust their interest rates accordingly to compensate for potential losses.

Because Creditors Can Foresee, to at Least Some Extent, the Costs