11) If a company borrows more money, which type of risk will increase? A) busine
ID: 2636293 • Letter: 1
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11) If a company borrows more money, which type of risk will increase? A) business risk 8) liquidity risk C) financial risk D) event risk 12) There is 20% chance for stock A to have 10% rate of return, 50% chance to have a rate of return 01 6%. and 30% chance to have a return of 12%. The expected rate of return on stock A is: A) 7.6% B) 8.6% C) 9.6% D) 10.6% 13) Which one of the following is a market risk for ABC company? A) product safety B) type of inputs used to produce output C) use of debt financing D) global financial crisis 14) You bought a stock for $37 a share a year ago. The stock does not pay any dividends. Today you sold the stock for $34 a share. What is the annual rate of return on this investment? A) 8.8% 13) -8.8% C) 8.1% D) -8.1%Explanation / Answer
10) Return on Investment will be = ($19.5 - $18)/ $18 *100 = $2/ $18 *100 = 11.1%
Hence, answer will be option B, i.e. 11.1%
11) (C) Financial Risk
12) Expected return on Stock A = (0.20 x 10%) + (0.50 x 6%) + (0.30 x 12%) = 2% + 3% + 3.6% = 8.6%.
Hence, answer will be option C, i.e. 8.6%
13) (D) Global Financial Crisis.
14) Annual Rate of Return = ($34 - $37)/ $37 * 100 = -8.1%
Hence, answer will be option D, i.e. -8.1%
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