WGU D076 Objective Assessment Version 2 (New 2024/ 2025 Update) Finance Skills for Managers| Questions and Verified Answers| 100% Correct| A Grade
... [Show More]
QUESTION
In 1980, the inflation rate was 5% and a particular investment gave a return of 15%. In 2010, the inflation rate was 5% and the same investment gave a return of 12%. In which year did stockholders gain greater purchasing power and why?
Answer:
1980 because the real rate was higher than in 2010
QUESTION
The word risk is used in many different contexts. How is risk defined in finance?
Answer:
The possibility that the realized or actual return will differ from the expected return
QUESTION
What makes market risk different from firm-specific risk?
Answer:
Market risk can- not be diversified away, and firm-specific risk can.
QUESTION
Which statement accurately describes firm-specific risk?
Answer:
Firm-specific risk is the risk associated with problems that companies may face because of lawsuits, labor problems, or management decisions, among other factors.
QUESTION
Which phrase accurately depicts what interest rate risk is?
Answer:
An example of market risk where the value of a bond is affected by changes in interest rates
QUESTION
Why would a company or individual want to retain risk?
Answer:
Both companies and individuals retain risk when they believe that the cost of pursuing an activity is less than the alternative.
QUESTION
Which type of risk can be reduced by adding a variety of different assets into a portfolio?
Answer:
Firm-specific risk
QUESTION
Which situation is a real-life example of risk transfer?
Answer:
Buying home insur- ance—risk is transferred from the policyholder to the insurer
QUESTION
How is risk separation different from diversification?
Answer:
Risk separation in- volves dispersing assets geographically instead of concentrating them in one loca- tion.
QUESTION
What tends to happen to the risk of an investment that offers a higher return?
Answer:
The risk is higher for an investment with a higher return.
QUESTION
How does the amount of time affect the risk associated with different investment vehicles?
Answer:
Stock investments are more risky over a shorter period of time than over a longer period of time.
QUESTION
Which statement correctly identifies the relationship between systematic risk and different types of firms?
Answer:
Utility companies have low systematic risk because as the market moves up and down, their level of risk will also move up and down but in a diminished way.
QUESTION
What makes the expected return subjective and different from other types of returns?
Answer:
The expected return is based on expectational data and the probability of different scenarios occurring.
QUESTION
What is the name for the process of "spreading" money over many different assets?
Answer:
Diversification
QUESTION
What is default risk?
Answer:
A firm-specific risk that comes from the probability of a loss resulting from a borrower's failure to repay a contractual obligation
QUESTION
A company that produces soap, shampoo, lotion, and other personal care products has recently taken a hit due to a competitor's new product line. The company decides to reduce wages for its labor force to save money while the company focuses on building up its reputation again, but the company's labor force goes on strike to protest the pay cuts. What type of risk does the strike represent?
Answer:
Idiosyncratic risk
QUESTION
Which description below correctly identifies one type of price risk?
Answer:
Oper- ating risk—depends on the effect of the firm's operating decisions on its operating costs [Show Less]