Adverse selection is a problem associated with equity and debt contracts arising from

• A. the lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities.
• B. the lender’s inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults.
• C. the borrower’s lack of incentive to seek a loan for highly risky investments.
• D. none of the above.