Which of the following is the best example of market risk?
a. A firm s investments benefit from an upswing in technology stocks.
b. An accounting error results in a tax penalty, which affects both retained earnings and dividends.
c. A firm decides to donate a percentage of its retained earning to charity rather than reinvest.
d. A firm wants to cash in on chocolate prices and expands to the Ivory Coast, which is embroiled in a civil war.
Market risk is considered as the unfortunate events happens in the market, which accounts both positive and negative events. There are many factors to determine the level of market risk. However, predicting the movement of those factors is difficult due to the lack of information.
Answer and Explanation:
The answer is D. The events happen in statement a, b and c relate to the internal risk, which the firm could eliminate those risks. The situation of statement D is civil war, which is not able to remove it immediately, but there would be a solution to reduce the effect of it.
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from CFP Certification Exam Study Guide - Certified Financial PlannerChapter 8 / Lesson 1