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A company faces two kinds of risk. A firm-specific risk is that a competitor might enter its market and fake some of its customers. A market risk is that the economy might enter a recession, reducing sales. Which of these two risks would more likely cause the company’s shareholders to demand a higher return? Why?

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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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Section
BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 14, Problem 7PA
Textbook Problem
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A company faces two kinds of risk. A firm-specific risk is that a competitor might enter its market and fake some of its customers. A market risk is that the economy might enter a recession, reducing sales. Which of these two risks would more likely cause the company’s shareholders to demand a higher return? Why?

To determine
When the shareholder will demand high return.

Explanation of Solution

Generally, the economy faces two kinds of risks: firm-specific risk and market-specific risk...

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