Module 4

Question 1

Types of Financial Risk

Answer 1

Liquidity Risk - ability to sell the tem. invest. in short period w/o sig price concecessions

Int rate risk - fluctuation in the value of “financial assets” when interest rates change

Purchasing power risk - risk that price levels will change and affect asset values (mostly real estate)

Question 2

How to calculate opportunity cost to a buyer not accepting terms of 3/10, net 45?

Answer 2

360/(Total pay period - Discount period) x Discount % / (100% - Discount %)

= 360/(45-10) x .3/(100-.97)
= 360/35 x .3/.97
= 31.81%