Risk Flashcards
Which statement regarding risk is true?
A. We can measure risk quantitatively by computing the expected value of a variable’s distribution.
B. High standard deviation means that the possible values of a variable are close to the mean.
C. The standard deviation can be negative.
D. High standard deviation indicates high dispersion of the possible values of a variable around the mean.
D
Which statement regarding business risk is false?
A. Fixed operating costs offset the effect of sales volatility on operating income volatility.
B. A way to measure a firm’s business risk is by calculating the firm’s standard deviation of the operating income forecast.
C. There is an inverse relationship between fixed operating expenses and business risk.
D. The more volatile a firm’s sales are, the more business risk the firm has.
A
Which of these is an example of a firm with no financial risk?
A. A firm that borrows only from financial institutions abroad.
B. A firm that has only equity financing.
C. A firm that incurs only in short-term loans.
D. A firm that incurs only in long-term loans.
B
How do we call the risk that can be diversified away?
A. Unsystematic risk.
B. Systematic risk.
C. Business risk.
D. Financial risk.
A
A rating of BBB refers to what type of risk?
A. Financial risk.
B. Systematic risk.
C. Business risk.
D. Credit risk.
D
Which of the following statements regarding portfolio risk is false?
A. Factors such as inflation or political events account for nondiversifiable risk.
B. Factors such a strike or a lawsuit in a firm account for diversifiable risk.
C. Extensive diversification can eliminate unsystematic risk.
D. Any investor or firm must be concerned solely with diversifiable risk.
D
