ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Either A or B
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None of the above
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Detailed explanation-1: -Business Risk is the risk associated with the amount of debt financing used by a firm. The adage “the sooner one receives a return on a given investment, the better, ” reflects the financial concept known as the: A. Time value of money.
Detailed explanation-2: -Slumps and Collateral A key risk of borrowing now and leveraging future cash flow is that sales could slump at some point, making it difficult to make payments. This can lead to missed payments, late fees and negative hits on your credit score.
Detailed explanation-3: -Debt financing affects neither the operating risk nor the business risk of the firm. Financial leverage describes debt financing’s amplification of the effects of changes in operating income on the returns to stockholders. Financial risk is the risk to shareholders that result from debt financing.
Detailed explanation-4: -Financial Risk: Financial Risk as the term suggests is the risk that involves financial loss to firms. Financial risk generally arises due to instability and losses in the financial market caused by movements in stock prices, currencies, interest rates and more.
Detailed explanation-5: -Credit risk-also known as default risk-is the danger associated with borrowing money.