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Risk & Reward/Risk Management 9. What are the primary (3) drawbacks of using hedging as a...
Question 7 (1 point) What is NOT a way how risk management increases firm value? Hedging makes some project to become NPV>0 Hedging decreases probability defaults and its costs Hedging is costly Hedging decreases discount rate Question 8 (1 point) Selling a forward contract is an obligation to ... the underlying asset issue Osell buy Oborrow
Which of the following is not a valid motive for corporate risk management (hedging)? a. Reducing the probability of bankruptcy b. Enhancing the effectiveness of performance-based compensation for managers c. Offsetting the costs of insurance d. Reducing the firm’s expected tax liability
Risk versus reward is ongoing in each life. What does it mean and how can we assess it? Why is it important for analysts to evaluate risk versus reward thoroughly and to report on it to users and management?
1. What is the primary goal of management? What are the primary tasks of a Chief Financial Officer (CFO) and others in finance function of an organization? 2. Name and explain three tricks that management can play to manage earnings. Explain how using financial ratios can help spot these tricks. 3. Why is it important to analyze profitability, specifically focusing on return on investment? Invoke the breakdown of ROI in thinking about your response.
What are the three options farmers (as price takers) have to manage price risk? Contracts, Negotiation, Hedging Contracts, Hedging, Insurance Contracts, Branding, Bargaining Look at the graph below. Which of these farmers is the most risk averse? Option 3 Expected return Farmer A Option 2 Option 1 Farmer B Risk Farmer A as, for the same risk, he needs a higher expected return than Farmer B Farmer B as, for the same risk, he needs a higher expected return than...
Chapter 9 1. The reward-to-systematic risk (beta) ratio is 7.7% and the risk-free rate is 4.2%. What is the expected return on a risky asset if the beta of that asset is .89? the security market line. 2. If a stock is overvalued, it will plot A. above B. on or above C. on D. on or below E. below 3. The stock of Healthy Eating, Inc., has a beta of.88. The risk-free rate is 3.8 percent and the market...
Describe the two primary types of government structures? What are the benefits and drawbacks to each? How are the drawbacks from one structure also the benefits of the other? Is it possible to have an operational structure that is “pure”, meaning that it will function exactly the way each is defined? Explain. How does the structural form of a government change economic incentives? Describe the three questions that a governing authority must address in an economy. How is each answered...
what are three primary aspects of information security risk management? why is each important?
1.Which of the following is not the reason for Basic risk of hedging using futures? a. The asset whose price is to be hedge may not be exactly the same as the underlying asset of the futures contract b. The asset whose price is to be hedge may not be exactly the same as the price of the futures contract c. The hedger may not be certain of the exact date the asset will be bought or sold d. The...
what are drawbacks of using CAPM