dentify each of the following risks as most likely to be systematic risk or diversifiable risk: The risk that the economy slows, decreasing demand for your firm’s products due to COVID-19. The risk that your best employees will be hired away. The risk that the new product you expect your R&D division to produce will not materialize.
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Identify each of the following risks as most likely to be systematic risk or diversifiable risk:
- The risk that the economy slows, decreasing demand for your firm’s products due to COVID-19.
- The risk that your best employees will be hired away.
- The risk that the new product you expect your R&D division to produce will not materialize.
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- 6) Which of the following is NOT a diversifiable risk?A) the risk that oil prices rise, increasing production costsB) the risk that the CEO is killed in a plane crashC) the risk of a key employee being hired away by a competitorD) the risk of a product liability lawsuitA manufacturing firm identified that it would have difficulty sourcing raw materials locally, so it decided to relocate its production facilities. According to COSO, this decision represents which of the following responses to the risk? A. Risk reduction. B. Prospect theory. C. Risk sharing. D. Risk acceptance.1.Which of the following statements is not correct about ESG? a.A mature ESG presence helps companies identify and tap into new markets, reach underserved customer bases, and innovate new products and services. b.A mature ESG presence leads to cost savings by reducing operating costs associated with material inputs (like water, energy from fossil fuels, soil). c.ESG information is used to understand enterprise risk management. d.ESG is about avoiding investment in companies that do not share one’s values. 2.What is a stakeholder? (Select all that apply) a.Someone who does construction staking for new building design plans b.An employee of a company c.A customer d.Someone who owns a “stake” in a company 3.What does a materiality assessment do? a.Assess what types of materials a company needs to create a product. b.Assess what ESG issues are most important to the long-term success of the business and most important to stakeholders. c.Assess a company’s marketing…
- Examples of systematic risk include a new competitor in the marketplace with the potential to take significant market share from the company invested in, a regulatory change(which could drive down company sales), a shift in management, or a product TRUE OR FALSE?If corporate managers are risk averse, does this mean that they will not take risks? If you were a corporate financial manager (NOT an individual person), would you prefer a low-risk, low-return project or a high-risk, high-return project, and why?WSP Inc. is involved in a wide range of unrelated projects. The company will pursue any project that it thinks will create value for its stockholders. Consequently, the risk level of the company's projects tends to vary a great deal from project to project. If WSP Inc. does not risk-adjust its discount rate for specific projects properly, which of the following is likely to occur over time? Check all that apply. The firm will become more valuable. The firm's overall risk level will increase. The firm could potentially reject projects that provide a higher rate of return than the company requires. Generally, a positive correlation exists between a project's returns and the returns on the firm's other assets. If this correlation is risk will be a good proxy for within-firm risk. Consider the case of another company: □ Chrome Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVS of $200,000. Management conducted a…
- Suppose that as the economy moves through a business cycle, risk premiums also change. For example, in a recession, when people are concerned about their jobs, risk tolerance might be lower and risk premiums might be higher. In a booming economy, tolerance for risk might be higher and premiums lower.a. Would a predictably shifting risk premium such as described here be a violation of the efficient market hypothesis?b. How might a cycle of increasing and decreasing risk premiums create an appearance that stock prices “overreact,” first falling excessively and then seeming to recover?An asset manager and he is overweight in equities because he believes that equities have more upside in the long run. However, he is worried that any negative news regarding COVID-19 may cause a short-term sell off in the stock markets. The asset manager thinks that any sell-off will be limited in size and duration. He is also concerned that implied volatility is very high, so he would like to minimize his vega exposure. Outline 2 different strategies that the asset manager could follow and explain the advantages and disadvantages of each strategy.A pharmaceutical company is considering investing in the development of a new drug. The company stands to make a lot of profit if the drug is successful. However, there is some risk that the drug will not be approved by government regulators. If this happens, the company will lose its entire investment. Advise the company how to take this risk into account as managers evaluate whether to invest
- 1. Consider the following five types of risk: (1) The risk of an oil explorer hitting oil (2) The risk of an oil company's revenues falling because the oil price falls as a result of weak demand (3) The risk of a pharma company failing to successfully develop a drug that is at its development stage (4) The risk of Google's revenues declining because of competition from Facebook (5) The risk of Google's revenues declining because of a downturn in the global advertising industry Which of the following statements is correct? A. Risks 1, 2 and 3 are diversifiable, the other risks are not diversifiable. B. Risks 1, 3 and 4 are diversifiable, the other risks are not diversifiable. C. Risks 1, 3 and 5 are diversifiable, the other risks are not diversifiable. D. Risks 2, 3 and 4 are diversifiable, the other risks are not diversifiable. E. None of the above 2. According to the CAPM, which has a higher expected rate of return: an individual stock with a beta of one or a diversified portfolio…WSP Inc. is involved in a wide range of unrelated projects. The company will pursue any project that it thinks will create value for its stockholders. Consequently, the risk level of the company’s projects tends to vary a great deal from project to project. If WSP Inc. does not risk-adjust its discount rate for specific projects properly, which of the following is likely to occur over time? Check all that apply. The firm will increase in value. The firm’s overall risk level will increase. The firm could potentially reject projects that provide a higher rate of return than the company should require. When a project involves an entirely new product line, the firm may be able to obtain betas from to calculate a weighted average cost of capital (WACC) for its new product line. Consider the case of another company. Chrome Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVs of…Suppose profits earned by one firm are independent of profits earned by other firms. When managers and shareholders diversify, then O poor outcomes of some projects are worsened by favorable outcomes of other projects. O both managers and shareholders are considered risk loving. O both managers and shareholders are considered risk averse. O poor outcomes of some projects can be offset by favorable outcomes of other projects.