All BAR Deck 05/16/24 Flashcards
No action is taken to change the severity of the risk
risk acceptance
Action is taken to remove the risk
risk avoidance
action is taken that accepts increased risk to achieve improved performance
pursue risk
action is taken to reduce the severity of the risk through risk mitigation techniques
risk reduction
action is taken to reduce the severity of the risk through outsourcing and insurance
risk sharing
how to calculate the real price
nominal price/(1+inflation rate)
the additional compensation demanded by investors for bearing the risk that the security issuer will fail to pay interest and/or principal due on a timely basis
default risk
How to calculate the market rate of interest for a U.S. t-bill?
risk free rate of interest + inflation premium
What does self-insure mean?
It means to cover the costs of damages instead of getting an insurance policy and this means to accept the risk
How to calculate residual risk?
Residual risk = Inherent risk - impact of management’s action
the risk to an entity in the absence of any direct or focused actions by management to alter its severity
inherent risk
what remains after action has been taken by management to reduce inherent risk.
residual risk
the amount of risk an entity prefers to assume in pursuing its goals and objectives.
target residual risk
Who comes up with the objectives for the COSO ERM system?
management/board of directors come up with them
What is the gross profit formula?
Sales - CoGS
What is the gross margin formula?
(Sales - CoGS)/Sales
How to calculate the sales mix percentage?
Find the total units sold during the year
Divide the amount sold of a certain product by the total units sold to find the sales mix percentage for this product
How is the information about plan members’ accounts typically presented in a defined contribution pension plan’s financial statements?
As a combined total of all members’ account balances.
The ____________ component of the COSO ERM framework contributes to the ongoing management of risk/opportunity scenarios in an entity by evaluating the effectiveness of the entity’s risk management activities.
monitoring
Why must there be a formal designation and documentation at the inception of a hedging relationship?
To ensure transparency and alignment with the entity’s risk management strategy.
How to find elasticity in economics?
% change in quantity/%change in price
How to find unit elastic quantity demanded?
1 = % change quantity demanded/supplied/% change in price
occurs when an investor’s certainty equivalent is less than the expected rate of return. The investor seeks higher returns for more risk.
risk averse behavior
occurs when an investor’s certainty equivalent is equal to the expected return on the investment.
risk indifferent behavior