Which of the below statements about an investment\'s financial Stand-alone risk

Question

Which of the below statements about an investment's financial Stand-alone risk is relevant only for investments held in isolation. Corporate risk generally is most relevant for not-for-profit firms. Market risk generally is most relevant for investor-owned firms. Even theugh an investment may have high stand-alone risk, portfolio effects often drive its corporate risk to zero. The portfolio risk of an individual investment is defined as the contribution of the investment to the overall riskiness of the portfolio.

Explanation / Answer

Stand alone risk is related to stand alone projects or investments. Market Risk is generally faced by invesment companies having huge market investment.

Investment standalone risks are diluted by portfolio effects and portfolio risk of individual investment contributes to the overall riskiness of a portfolio. All these statements are correct.

However the statement that Corporate Risk is generallymost relevant for Not for Profit firms is not a correct statement as the Coporate risks faced by for Profit organizations are also big if not bigger that not for profit organizations. As thefir profit companies have profit targets , they need to take many complex activities with a higher corporate risk element and may get exposed to higher corporate risk than not for profit organizations.

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