Concept explainers
To select: The factor which reflect pure market risk for given corporation is to be determined.
Introduction : The pure market risk is a type of risk which cannot be controlled,and it can result in total loss or no loss at all.
Answer to Problem 1PS
The correct options are- option (a), (c) and (e).
Explanation of Solution
Given information : The factors which reflect the pure market risk are to be acknowledged.
the factors which reflect the pure market risk for the given corporation is given as −
Increment in short term interest rates
Increment in insurance costs
Increment in labor costs
These factors affect the each and every corporation with equal intensity. Therefore, these factors reflect the pure market risk which is called as systematic risk or undiversified risk. Hence the options (a), (c) and (e) are correct.
Want to see more full solutions like this?
Chapter 7 Solutions
EBK INVESTMENTS
- A company's stock price jumped when it announced that its revenue had decreased because of the quality issues of its products. This is an example of market risk Ounsystematic risk O undiversifiable risk O systematic riskarrow_forwardIf you are in financial hardship, explain what it means. If we suppose that financial hardship occurs, explain how and why financial distress would make a company's stock more hazardous.arrow_forwardUsing profit as the sole guide for corporate action can lead to short term profits but: Ba.) increased corporate social responsibility optionsb.) long-term loss of customersc.) more complicated measurement challengesd.) increased tax liabilitiesarrow_forward
- Give typing answer with explanation and conclusion Which of the following represent undiversifiable risks? I. The Federal Reserve raises interest rates. II. A product is recalled because of safety problems. III. The economy slips into a recession. IV. The CEO 's divorce settlement forces him to sell off half of his stock holdings.arrow_forwardWhich one of the following best describes systematic risk in owning the common stock of the Ford Motor Automobile company? a) Lower car sales announced by the auto sector in general b) An increase in the price of steel used in automobiles c) Lower interest rates leading to an increase in the stock market in general d) The Ford Motor Company announcing a large new sales order.arrow_forwardWhich one of the following factors may affect stock return but out of the CEO's control?This chould potentially be a problem when trying up the compensation scheme to stock returns/ A.Supply chain risk management B.Federal monetary policy and regulations C.The rival firm recruits the company's employees D.Tte high inflation rate announced in the last quaterarrow_forward
- Which of the following would likely encourage a firm to increase the debt in its capital structure? a. The corporate tax rate increases. b. The personal tax rate increases. c. Due to market changes, the firm’s assets become less liquid. d. Changes in the bankruptcy code make bankruptcy less costly to the firm. e. The firm’s sales and earnings become more volatile.arrow_forwardwhich one is correct answer please confirm? QUESTION 28 The business risk of a firm refers to the ____. a. influence of government regulations on business earnings b. results from using fixed-cost sources of funds c. variability in the firm's operating earnings over time d. variability in the price of a firm's securitiesarrow_forwardClassify the following events as mostly systematic or mostly unsystematic. Is the distinction clear inevery case? Provide detailed explanation. a. Short-term interest rates increase unexpectedly.b. The interest rate a company pays on its short-term debt borrowing is increased by its bank.c. Oil prices unexpectedly decline.d. A manufacturer loses a multimillion-dollar product liability suit.arrow_forward
- Which of the following events is most likely to encourage a firm to INCREASE the amount of debt in its capital structure with other things held constant? Group of answer choices: Management believes that the firm's stock has become overvalued. Its sales become more stable over time. Its degree of operating leverage increases. The costs that would be incurred in the event of bankruptcy increase. The corporate tax rate decreases.arrow_forward5) A company's stock price jumped when it announced that its revenue had decreased because of the quality issues of its products. This is an example of ________.A) market riskB) unsystematic riskC) systematic riskD) undiversifiable riskarrow_forwardProvide an explanation of the impact of external factors on the financial position of your selected company. Use the Interest Rates Spreadsheet to demonstrate the implications of interest rate changes on at least one. Specifically, the following critical elements must be addressed: Macroeconomic Items: The CEO of your selected company is convinced that financial analysis should hinge only on what is happening internally within the company. Convince the CEO otherwise based on the following: Analyze the implications of interest rate changes on any of your calculations. Support your claims. Determine how an issue in the overall stock market—negative or positive—might impact the company’s stock valuation numbers, other financial variables, or its overall portfolio management. Support your response with evidence through research, references, and citations. Analyze the impact of any external factor of PepsiCo. discussed throughout the course on the company’s financial position.…arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningBusiness/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning