Question

Question 10 

Which of the following is true about the degree of operating leverage? 

Operating leverage is higher if fixed operating costs are high relative to variable operating costs 

Higher operating leverage increases the sensitivity of operating income to changes in sales 

Operating leverage magnifies both profits and losses, helping in the good times and causing pain in the bad times 

All of the above 

Question 12 

What does the beta measure? 

unsystematic risk. 

systematic risk 

diversifiable risk 

company-specific risk 

Question 14 

Why do we use Capital Asset Pricing Model (CAPM)? 

because it is impractical to account for the correlations of thousands of possible investments 

because CAPM assumes that investors choose to hold the least diversified portfolio that includes all risky investments 

because the relevant risk of an investment is determined by how it contributes to the risk of this individual portfolio 

All of the above 

Answer 1

10. All of these statements about degree of operating leverage are correct because degree of operating leverage is reflective of fixed cost and when there would be higher operating leverage, it will mean that there would be a higher sensitivity and higher risk of profit and loss along with higher fixed operating cost.

Correct answer is option( d) all of the above

11. Beta is a measurement of systematic risk as one can see it through calculation of Capital Asset pricing model where beta will be reflecting also the systematic risk.

Correct answer will be option be systematic risk

12.Capital Asset pricing model is used because the relevant risk of investment is determined by how ot contributes to the risk of the overall portfolio.

Correct answer will be option (C)