FUND. OF CORPORATE FINANCE W/ACCESS >I
15th Edition
ISBN: 9781323510728
Author: Berk
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 11, Problem 8CT
Which of the following risks of a stock are likely to be unsystematic, diversifiable risks and which are likely to be systematic risks? Which risks will affect the risk premium that investors will demand?
- The risk that the founder and CEO retires
- The risk that oil prices rise, increasing production costs
- The risk that a product design is faulty and the product must be recalled
- The risk that the economy slows, reducing demand for the firm's products
- 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.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
What are some of the risks an investor would face when investing in a stock? In addition to the business risk coming from the type of business environment that your company operates in, what additional risk would be of concern to an investor?
The company might be mismanaged and do poorly or go out of business.
The company's stock market return might be wildly unpredictable as the operating performance might be unstable.
The company's competitors might do a better job and take market share away?
The list goes on and on...
What risks would you face if you bought 100 shares of Tesla?
Market risk is
A) the risk of bad business strategy or management decisions being made
B) the risk that a company will be unable to meet its financial obligations
C) the risk of not being able to close out your position quickly and at a fair price
D) the risk of prices going up or down
E) also known as inflation risk
If a public test of a new product that has been publicly known to be under development at your company shows sensational results and is therefore expected to lead to a large positive NPV of future cash flows for your company (but likely to lead to an NPV which is less than what investors were expecting before the public announcement), explain whether your stock can be expected to go up or down on the news in a semi-strong efficient market where security prices reflect all information as it becomes public. Company is birkshire hathaway
Chapter 11 Solutions
FUND. OF CORPORATE FINANCE W/ACCESS >I
Ch. 11 - Prob. 1CCCh. 11 - Why do investors demand a higher return when...Ch. 11 - For what purpose do we use the average and...Ch. 11 - How does the standard deviation of historical...Ch. 11 - What is the relation between risk and return for...Ch. 11 - Prob. 6CCCh. 11 - Prob. 7CCCh. 11 - Prob. 8CCCh. 11 - Prob. 9CCCh. 11 - Does systematic or unsystematic risk require a...
Ch. 11 - What does the historical relation between...Ch. 11 - What are the components of a stock's realized...Ch. 11 - What is the intuition behind using the average...Ch. 11 - Prob. 4CTCh. 11 - How does the relationship between the average...Ch. 11 - Consider two local banks. Bank A has 100 loans...Ch. 11 - What is meant by diversification and how does it...Ch. 11 - Which of the following risks of a stock are likely...Ch. 11 - Prob. 9CTCh. 11 - Prob. 10CTCh. 11 - If you randomly select 10 stocks for a portfolio...Ch. 11 - Why doesn't the risk premium of a stock depend on...Ch. 11 - Prob. 13CTCh. 11 - DATA CASE Today is April 30, 2016, and you have...Ch. 11 - Convert these prices to monthly returns as the...Ch. 11 - Prob. 3DCCh. 11 - Prob. 4DCCh. 11 - Prob. 5DCCh. 11 - What do you notice about the average of the...Ch. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Your portfolio consists of 100 shares of CSH and...Ch. 11 - You have just purchased a share of stock for $20....Ch. 11 - The following table contains prices and dividends...Ch. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Use the data in SBUX_GOOG.xlsx on MFL to answer...Ch. 11 - Download the spreadsheet from the book's Web the...Ch. 11 - Prob. 11PCh. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Consider the following five monthly returns: a....Ch. 11 - Explain the difference between the arithmetic...Ch. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - You are a risk-averse investor who is considering...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 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?arrow_forwardIt is an axiom that may be characterized by managers making decisions that conflict with the best interest of the shareholders. a. the risk-return trade-off b. the agency problems c. the curse of competitive markets d. stockholders versus managersarrow_forwardExplain intuitively how a manager could tweak the salvage value of machinery to benefit from an expected reduction in the corporate tax rate taking place towards the end of an investment. What are the shortcomings of the payback period criterion? Which of these shortcomings are accounted for in the dynamic payback period criterion? Which are not? “If a stock had high returns so far, it will have low returns in the future”. Discuss whether this statement is true or false, based on the knowledge of the different theories and models out there.arrow_forward
- Explain in full detail why the following statement is false: "Financial managers should not focus on the present stock value of the company. Instead, they should focus on the profitability of the company. Doing so will result in increasing the value of the stock.arrow_forwardYou observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency?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
- You are concerned about one of the assets in your diversified portfolio. You just have an uneasy feeling about the CFO of that particular firm. You do believe however that the firm makes a good product and that it is appropriately priced by the market. Should you be concerned about the effect on your portfolio if the CFO embezzles a portion of the firm's cash? Discuss based on diversification of assets in a portfolio. Further assume your friend is trying to decide to purchase stock from that same company. She does not hold a diversified portfolio like you do. Based on the relationship between risk and return, will you be willing to pay a higher price for the stock than her? Explainarrow_forwardExplain how managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.arrow_forwardWhich of the following are consistent with the efficient market hypothesis? Check all that apply. Changes in stock prices can be accurately predicted by investors. At the market price, the number of people who believe the stock is overvalued exactly equals the number of people who think the stock is undervalued. A positive news release about a company will increase the value and stock price for that firm. Some investors cite the existence of anomalies—observations that do not fit the model—as evidence that stock markets are not efficient. Which of the following are such anomalies? Check all that apply. The best time to sell a stock is late on Wednesday or Friday, whereas the best time to buy a stock is late on Tuesday or Thursday. The movement of stock prices of companies over time is the same as the changes in their earnings. High returns to a stock in one period are associated with even higher returns in a later period. There is a…arrow_forward
- Write a brief description of the logic behind the development of the time value formula for annuities. Why does stock-based compensation create a moral hazard for executives?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_forwardwhat happens if a company doesn't manage risk ?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Business/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
Business/Professional Ethics Directors/Executives...
Accounting
ISBN:9781337485913
Author:BROOKS
Publisher:Cengage
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Investment Risk and Its Types; Author: EconClips;https://www.youtube.com/watch?v=qDZw_iKzJlI;License: Standard Youtube License