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True/False (3 points each) 1.______ Risk manageme...

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True/False (3 points each) 1.______ Risk management is an informal process that is used to identify risks. 2.______ There is no need to be concerned about intangible assets in a risk management plan. 3.______ During the risk identification process, risk symptoms are determined. 4.______ Risks can be assessed using quantitative and qualitative measures. 5.______ Brainstorming is a qualitative measurement tool. 6.______ When the Delphi technique of measuring risk is used, senior management is consulted with to determine their assessment of risk. 7.______ The risk management tool of risk transfer, involves acting as if there is no risk. 8._____ Business risk is the variability in a firm?s earnings per share that is derived from its sales variability in conjunction with fixed operating costs. 9._____ The exposure to business risk may be reduced by portfolio diversification. 10._____ The two major categories of property are real property and business property. Multiple choice (4 points each) 11. The country risk appraisal aims to identify all of the following external factors affecting an organization except; a. political b.financial c. operational d. economic 12. The utility theory places individuals into three categories of modeling behavior. They are; risk neutral, risk seeking and: a. risk believing b. risk manager c. risk taking d. risk averse 13. Diversification is the key to the management of portfolio risk because it; a. shows investors how to make money quickly b. allows investors to lower portfolio risk without adversely affecting return c. totally eliminates risk d. moves risk from one security to the other 14. Which of the following does the texts discuss as the common sources of pure risks: a. property, liability, financial, health b. property, liability, life, health, loss of income c. property, health, loss of income, financial d. economic, property, liability, loss of income 15. The asset on which a derivative contract is based is called a: a. capital asset b. current asset c. underlying asset d. intangible asset 16. A top-down approach to risk management includes all of the following as disadvantages except: a. communication difficulties from one level to the next b. no process to pass strategic business and project level data to the corporate level c. difficulty updating the model because it is not a continuous process d. complete risk assessment 17. The investor?s required rate of return can be defined as: a. the minimum amount of money needed to invest b. minimum rate of return needed to attract an investor to purchase a security c. The amount of return a financial institution will pay an investor d. the document that defines the requirements for investing Problems/Essay: Problem 1(15 points): Be sure to show your work for computations. Use CAPM methodology to compute the following: A. Compute a fair rate of return for Intel common stock with a beta of 1.2. The risk free rate is 6% and the NYSE market portfolio has an expected return of 16%. B. B. Why is the rate you computed a fair rate? Problem 2 (15 points) The Niagra corporation is considering two mutually exclusive projects. Both require an initial outlay of $10,000 and will operate for 5 years. Project A will produce expected cash flows of $5,000 per year for years 1 through 5 and project B will produce expected cash flows of $6,000 per year for years 1 through 5. Management of Niagra believes that project B is the riskier project and therefore assigns a required rate of return of 15% to its evaluation and only a 12% required rate of return to project A. Calculate each projects risk-adjusted net present value. (be sure to show your work)

 

Paper#1881 | Written in 18-Jul-2015

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